Copyright © 2014, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria.
Barriers in supplier development encountered by SMEs as suppliers in the
South African railway industry
Phila Elvis Sithole
27591639
A research project submitted to the Gordon Institute of Business Science,
University of Pretoria, in partial fulfilment of the requirements for the
degree of Masters of Business Administration.
10 November 2014
© University of Pretoria
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
ii
ABSTRACT
The purpose of the study was to explore barriers to supplier development
encountered by SMEs as suppliers in the South African railway industry. The
first objective was to identify barriers faced by SMEs to be suppliers of large
OEMs in the South African railway industry. The second objective was to
establish the challenges that lead to failure in the supplier development
process. The third objective was to describe the activities done by SMEs to
position themselves in becoming preferred supplier development candidates for
OEMs in the South African railway industry. SMEs as suppliers in the railway
industry were interviewed through an explorative interview. The interview
targeted suppliers who were involved in the railway industry and who are
actively seeking contracts with the South African railway operators. The findings
are that new suppliers are experiencing barriers to enter the railway industry.
The key barriers for new suppliers are industry human capital, industry
regulation, capabilities, ineffective government intervention and lack of
resources. The main challenges identified during the supplier development
process are the long bureaucratic process related to supplier development on-
boarding, miscommunication and lack of transparency. Suppliers also faced
challenges in the way they position themselves in becoming preferred suppliers
development candidates for OEMs in the South African railway industry.
Recruiting railway expertise and innovating compliant products were the most
effective measures taken by suppliers in becoming a preferred supplier.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
iii
Keywords:
Buyer-Supplier
Competitive Supplier Development (CSDP)
Original Equipment Manufacturer (OEM)
Rail Industry
Small and Medium Enterprise (SME)
State Owned Enterprise (SOE)
Supplier Development
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
iv
Declaration
I declare that this research project is my own work. It is submitted in partial
fulfilment of the requirements for the degree of Master of Business
Administration at the Gordon Institute of Business Science, University of
Pretoria. It has not been submitted before for any degree or examination in any
other University. I further declare that I have obtained the necessary
authorisation and consent to carry out this research.
Name:
Signature:
Date: 10 November 2014
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
v
ACKNOWLEDGEMENTS
I would like to acknowledge my family for the support they gave me through the
MBA journey. Thank you very much to my Lord Jesus Christ for being my
shepherded and given me strength through out. I would like to thank my fellow
class mates for their moral support while doing late nights at Gibs specifically
Terrence Nkosi. Special thanks to Anastacia for all the advices. Thank you to
Pieter Pretorius my supervisor for all the support.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
vi
TABLE OF CONTENTS
ABSTRACT ......................................................................................................... ii
ACKNOWLEDGEMENTS ................................................................................... v
TABLE OF CONTENTS ..................................................................................... vi
CHAPTER 1 ....................................................................................................... 1
INTRODUCTION ................................................................................................ 1
1.1 Study background ..................................................................................... 1
1.2 Research context ...................................................................................... 3
1.3 Problem statement ................................................................................... 4
1.4 Research objectives ................................................................................. 5
1.5 Research questions .................................................................................. 6
1.7 Document contents ................................................................................... 6
1.8 Chapter summary ..................................................................................... 6
CHAPTER 2 ....................................................................................................... 7
LITERATURE SURVEY ..................................................................................... 7
2.1 Introduction ............................................................................................... 7
2.2 South African railway industry .................................................................. 7
2.3 SMEs involvement .................................................................................... 8
2.4 Supplier development ............................................................................. 11
2.5. Buyer-supplier relationship .................................................................... 13
2.6 Barriers to entry ...................................................................................... 16
2.7 Challenges during supplier development process. ................................. 18
2.8 Market positioning by SMEs to be preferred suppliers. .......................... 20
2.9 Chapter summary ................................................................................... 22
CHAPTER 3 ..................................................................................................... 23
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
vii
RESEARCH QUESTIONS ............................................................................... 23
3. 1 Introduction ............................................................................................ 23
3.2 Research questions ................................................................................ 23
3.2.1 First research question ..................................................................... 23
3.2.2 Second research question ............................................................... 23
3.2.3 Third research question ................................................................... 23
CHAPTER 4 ..................................................................................................... 24
RESEARCH DESIGN AND METHODOLOGY ................................................. 24
4.1 Introduction ............................................................................................. 24
4.2 Research philosophy .............................................................................. 24
4.3 Research design ..................................................................................... 24
4.4 The sample size and frame .................................................................... 25
4.5 Population sampling ............................................................................... 25
4.6 Research instrument............................................................................... 25
4.7 Data collection ........................................................................................ 26
4.8 Data analysis .......................................................................................... 26
4.9 Reliability and validity ............................................................................. 27
CHAPTER 5 ..................................................................................................... 28
RESEARCH FINDINGS AND ANALYSIS ........................................................ 28
5.1 Introduction ............................................................................................. 28
5.2 Respondents profile ................................................................................ 28
5.3 Themes presentation from the findings................................................... 28
5.3.1 Themes from the first research question .......................................... 28
5.3.2 Themes from the second research question .................................... 40
5.3.3 Themes from the third research question ......................................... 54
5.4 Chapter summary ................................................................................... 66
CHAPTER 6 ..................................................................................................... 67
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
viii
RESULTS DISCUSSION ................................................................................. 67
6.1 Introduction ............................................................................................. 67
6.2 The context of the finding ....................................................................... 67
6.3 Barriers encountered by SMEs as suppliers ........................................... 68
6.4 Challenges in the supplier development process ................................... 71
6.5 SME’s strategy as suppliers to align with customers .............................. 75
6.6 Proposed successful supplier development model ................................. 79
6.7 Chapter summary ................................................................................... 81
CHAPTER 7 ..................................................................................................... 82
CONCLUSION ................................................................................................. 82
7.1 Introduction ............................................................................................. 82
7.2 Conclusion .............................................................................................. 82
7.3 Contribution of the study ......................................................................... 83
7.3.1 Contribution to theory ....................................................................... 83
7.3.2 Contribution to practice .................................................................... 84
7.3.3 Contribution to methodology ............................................................ 85
7.4 Recommendation for future research ..................................................... 85
LIST OF REFERENCES .................................................................................. 86
APPENDIX A: DISCUSSION GUIDE ............................................................... 91
APPENDIX B: INFORMED CONSENT ............................................................ 93
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
ix
LIST OF TABLES
Table 1: Schedule of small businesses .............................................................. 9
Table 2: Classification of barriers to entry ........................................................ 17
Table 3: Process steps for supplier development. ............................................ 18
Table 4: Pitfalls in supplier development process ............................................ 19
Table 5: Commodity portfolio matrix ................................................................. 21
Table 6 : Barriers to entry themes .................................................................... 29
Table 7: Supplier Development process activities ............................................ 40
Table 8 : Challenges during supplier development process ............................. 45
Table 9 : Mitigating challenges in supplier development programme ............... 52
Table 10 : Positioning strategy to be a preferred supplier ................................ 55
Table 11: Supplier development process results comparison .......................... 73
LIST OF FIGURES
Figure 1: Value sought by buyers from suppliers ............................................. 12
Figure 2: Qualitative data analysis ................................................................... 26
Figure 3: Proposed successful supplier development model ........................... 80
LIST OF ABBREVIATIONS
BEE: Black Economic Empowerment
CSDP: Competitive Supplier Development Programme
DTI: Department of Trade and Industry
OEM: Original Equipment Manufacturer
PRASA: Passenger Rail Association of South Africa
SEDA: Small Enterprise Development Agency
SME: Small and Medium Enterprise
SOE: State Owned Enterprise
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
1
CHAPTER 1
INTRODUCTION
1.1 Study background
In the current age of globalisation, home country firms particularly in emerging
markets such as Asia and Latin America, are increasingly displaced with
multinational firms from the developed countries in the North. These multinational
firms which are mostly original equipment manufacturers (OEM) buy from SMEs
(Small and Medium Enterprises) and seek to improve their financial outcomes
through operation effectiveness (Li, Humphreys, Yeung, & Edwin Cheng, 2007). As
part of enhancing operation effectiveness, some of the multinational firms commence
lean-operations by concentrating on their core competencies. As a result they
become more dependent on suppliers which are pre-dominantly SMEs.
To still compete at a global level of quality, firms must ensure that their supplier’s
performance and capabilities are equal to or greater than the performance and
capabilities of the firm’s competitors (Krause, 1997). Most of these firms encounter
SMEs without competitiveness, product quality, production process, managerial skills
and capacity for technical skills (Kalota, 2011). This poses a challenge on buyer
firms to derive mechanisms or activities aimed at improving the supplier’s
performance and/or capabilities to meet the buyer's short-term or long-term supply
needs, the process thereof is simply known as supplier development.
Supplier development is a concept which was first championed by Toyota in a form
of supplier association linkage for the sake of productivity improvement. Toyota had
an embracing history of supplier association, supplier network and a culture of
collaboration between its suppliers which in turn enabled quick diffusion of network
knowledge to improve weaker suppliers to become competitive (Dyer & Nobeoka,
2002).
Through supplier development, OEMs as buyers and SMEs as suppliers jointly form
a buyer-supplier relationship. The supplier will be interested to achieve the approved
list status in the supply chain of the buyer as its customer. The buyer as a customer
will be looking to achieve the preferred customer status in the operation capability of
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
2
the supplier (Schiele, Veldman & Hüttinger, 2010). According to Terpend, Tyler,
Krause and Handfield (2008) together the buyer-supplier relationship will have
integrated objective of seeking:
Improved cooperation,
Reduction of risk/opportunism,
Coordination of activities, and
Knowledge acquisition/transfer
In order to achieve the above stated objectives, supplier development requires both
firms to commit financial, capital, and personnel resources to the work; to share
timely and sensitive information; and to create an effective means of measuring
performance (Handfed & Krause, 2000).
Both the OEMs and SMEs see value in supplier development however it still comes
with an effort and it has its own challenges. OEMs face challenges in deriving a set
of policies and procedures, and to allocate resources towards supplier development
(Schiele et al., 2010). Unlike OEMs, SMEs are sensitive to barriers and mostly will
encounter barriers to become suppliers (Luk'ianov & Kisliak, 2007). Successful
SMEs have to overcome these barriers to make it on the list of OEMs as suppliers
and to participate in successful supplier development initiatives.
The most significant barriers encountered by SMEs are funding and competition
barriers (Fumo & Jabbour, 2011). Further, Karakaya (2002) identified top five out of
25 barriers to be absolute cost advantages, capital requirements to enter industry,
incumbents having a superior production process capital intensity of the industry,
proprietary production technology, and loyalty to long established customer
relationships. Behavioural barriers were also found to be the most effective
instruments of impending entry (Luk'ianov & Kisliak, 2007).
SMEs don’t not only encounter barriers, it is argued that during the process of
supplier development, there are major failures that happen (Handfietd et al., 2000).
Handfietd et al. (2000) identified four major failures during the process of supplier
development:
during meetings of buyer and supplier management teams,
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
3
when defining key projects,
when defining agreement terms and determining metrics for success, and
when monitoring project status and subsequently modifying strategies.
These failures were found to hinder the supplier development process and the
development of long term supplier-buyer relationships necessary for a
productiveness effectiveness of both parties (Li, Humphreys, Yeung, & Edwin
Cheng, 2007).
In order to minimise the barriers and failures during the supply development process,
both parties the supplier and the buyer must be willing to invest in the relationship to
cultivate a climate of trust to eliminate risk uncertainties due to the sensitive
information being shared (Nagati & Rebolledo, 2013). Suppliers must take actions to
better position themselves as supplier development candidates by making specific
investment in time and resources towards the needs of the customer.
Therefore this study seeks to discover the insights on supplier development,
particularly on the notion of SMEs as suppliers, barriers they encounter to be
suppliers in the South African railway industry, and causes of failures in supplier
development process and the actions they take to become supplier development
candidates.
1.2 Research context
This research is focused on the South African context as a boundary condition. In
the South African context government has been formulating and implementing
policies that will facilitate supplier development. The department of public enterprises
initiated a CSDP (Competitive Supplier Development Programme) programme to
improve national supplier industry competitiveness. The Department of Public
Enterprises through SOEs (State owned enterprises) targets economic growth
through infrastructure investment. The CSDP programmes are aimed at leveraging
SOEs expenditures to develop competitive national supplier industries, and where
possible to build export capabilities (DPE, 2010).
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
4
Transnet embraced CSDP programme in 2008 and developed a frame work together
with DPE that prioritises supplier development opportunities based on a commodity’s
industrial and value leverage and strategic importance (Choke & Pita, 2013).
Transnet focused the CSDP programmes to three components that of value namely:
Localisation,
Sustainability, and
Skills Transfer.
These components would be informed by individual tender who compel suppliers
mostly multinational OEMs to submit their CSDP proposals which is allocated
percentage points towards which forms part of the total bid score.
A number of policies were drafted to guide government processes leading to
industrialisation which partially resulted to supplier development framework. The first
policy is NIPF (National Industrial Policy Framework) drafted with the primary
objective of setting out government’s approach to the industrial development of the
South African economy. Moreover South Africa had a number of successes in
development programmes that promoted localisation and industrial development.
One of the programmes is the Motor Industry Development Programme (MIDP)
which rescued the survival of the South African automotive industry, secured
employment in the core automotive industry and generated significant linkages in the
supply chain processing sectors like leather and plastics. In the railway industry the
Transnet Freight Rail (TFR) build its CSDP foundation by procuring 100 GE (General
Electric) locomotives which integrated down-stream supplier development (Van de
Walt, 2011). This shows that supplier development is significant in the South African
Context.
1.3 Problem statement
Supplier development has gained focus in state institutions, industry and academia
consequently making research in this area to be of paramount significance to create
and gain knowledge on supplier development practices (Ahmed et al., 2012). As
much as there is a growing interest in supplier development, literature shows that
there is scant research done in investigating the pitfalls and barriers encountered by
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
5
SMEs as suppliers during the supplier development deployment process (Ahmed &
Hendry, 2012). Most of research in supplier development focused on the buying
firm’s perspective, thus creating paucity of research from the supplying firm’s
perspective (Nagati & Rebolledo, 2013). As such there is a need for research to
centre attention on the difference between the supplier’s and buyer’s supplier
development activities while taking into consideration the relationship between the
buyer and supplier firm (Ahmed & Hendry, 2012).
Further challenges in supplier development research are centred on the contextual
settings. Supplier development is well entrenched in the automotive industry (e.g.
Toyota), aerospace (e.g. Airbus), textile (e.g. Nike), electronics (e.g. Motorola) and
retail (e.g. Walmart) (Rajput & Bakarb, 2012) leaving other industries like the railway
industry under explored. The railway industry portrays a distinct contextual setting as
most of the state monopolies in railway hinder a competitive environment from the
SMEs (Beck, 2011). In addition, some of the OEMs in the railway industry have
inadequate experience in supplier innovation push and clearly defined policies that
guide supplier relationships (Röckle, 2013).
Therefore this study aims to investigate the barriers in supplier development
encountered by SMEs as suppliers within a context of South African railway industry.
Furthermore this study will also determine the cause of failures during the supplier
development process and finally establish activities performed by SMEs to better
position themselves as suppliers as supplier development candidates.
1.4 Research objectives
RO1. To identify barriers faced by SMEs to be suppliers of large OEMs in the South
African railway industry.
RO2. To establish the challenges that lead to failure of the supplier development
process.
RO3. To describe the activities done by SMEs to position themselves in becoming
preferred supplier development candidates for OEMs in the South African railway
industry.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
6
1.5 Research questions
RQ1. What are the barriers associated with the South African railway industry encountered by SMEs in becoming suppliers in the industry?
RQ2. What are challenges encountered during the supplier development process?
RQ3. How do SMEs position themselves to become preferred suppliers in the South
African railway industry?
1.7 Document contents
Chapter 1 introduced the study background, research context, problem statement,
research objectives and questions. Chapter 2 presents the critical review of the past
and current literature and research relevant to the problem is presented under the
following themes: South African railway industry, SMEs involvement, supplier
development process, barriers to entry, challenges during supplier development and
finally industry positioning as preferred suppliers. Chapter 3 presents the three
research questions of this study. Chapter 4 is the methodology that was used to
collect the data and the results thereof are presented in Chapter 5. The presentation
of results is followed by the discussions of the results in relation to the relevant
literature in Chapter 6. The results of the study are concluded in Chapter 7, which
highlights the contributions of the study and recommendations for future research.
1.8 Chapter summary
The chapter discusses the background to supplier development from studies done in
the past by experts in the field and also introduces supplier development in the
South African context. The problems statement is stated that barriers in supplier
development are not well understood in the railway industry. The research questions
are and its objectives are stated.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
7
CHAPTER 2
LITERATURE SURVEY
2.1 Introduction
This section introduces the literature review on supplier development in the South
African railway industry. The discussions are commenced with the overview of the
South African railway industry followed by a review on SMEs in the South African
context. These discussions are then followed by section on supplier development,
barriers to entry encountered by SMEs in railway industry and the challenges
associated with the supplier development process. The section is concluded with a
review on how SMEs position themselves to be preferred suppliers.
2.2 South African railway industry
The South African backstory of railway dates back in 1910 where the inception of the
Union of South Africa resulted in combination of the colonial Natal Government,
Cape Government, and Central South African railways into the South African
Railways known as the Transnet Freight Rail (Cottrell, 2010). The first 90 years of
existence the railways had a magnificent antiquity which was followed by lot of crises
in the subsequent nine decades. However it is believed that now the railway is once
again gaining momentum and well positioned to have an opulent future in the 21st
century (Cottrell, 2010).
The promising glorious future of the railway is due to the financial resources
dedicated to develop this sector. The National Treasury Republic of South Africa
2012 budget review highlighted that Transnet is committed to invest about R300
billion over the next seven years towards railway development, of which R107.7
billion is included in approved plans over the Medium Term Expenditure Framework
(MTEF) period (Department of Trade and Industry, 2010). The core objective of
these investments is to develop the freight rail network, large capacity
enhancements on the iron ore and coal export lines, acquiring modern rolling stock
and refurbishing existing infrastructure. The enhanced capacity will benefit both the
general freight and mining exports (National Treasury, 2012). In addition to these
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
8
initiatives on railway development, the Passenger Rail Agency of South Africa
(PRASA) has commenced with a long-term programme to revitalise its fleet of rolling
stock and upgrade stations nationwide. The 20-year investment forecasts on the
programme exceeds R80 billion, with a predicted R4 billion to be spent over the
MTEF period. These investments will improve reliability and safety for the 2.4 million
passengers who travel on the network each work day (National Treasury, 2012).
The focus on railway development is not only limited to financial investments, but
they also include the development of suppliers within the railway industry. The South
African Department of Public Enterprises established the Competitive Supplier
Development Programme (CSDP) as one of the supplier development initiatives
focusing on procuring in such a way as to increase the competitiveness, capacity
and capability of the local supply base, where there are comparative advantages and
potential competitive advantages of local supply (Transnet, 2010).
Transnet (2010) highlights that the emphasis of supplier development is on
developments that results in a supplier base that can:
ensure security of supply to State Owned Enterprises (SOE),
contribute in the reduction in pertaining costs of the SOE,
reduce the reliance on imported products,
enhance the local IP (Intellectual Property) and skills base, and
And eventually be competitive to market its goods in the international market
leading to increased exports.
Furthermore this opportunity is specifically aimed at promoting South African
business as offshore suppliers of choice for original equipment manufacturing
companies. These types of opportunities generally focus on component manufacture
upgrade but require targeted skills training to ensure that capabilities are built in the
local industry (Transnet, 2010).
2.3 SMEs involvement
SMEs contribute significantly to growing the economy; hence policy makers,
economists, and business experts perceive them as “drivers of economic growth”.
The major contribution of SME sector to economic growth is through job creation,
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry
9
high productivity, increased exports and innovation (Mahembe, 2011). Despite the
significance and a high need of SMEs the South African Global Entrepreneurship
Monitor 2012 Report showed that South Africa has a low established business
prevalence rate which raises concerns of the SMME sector’s ability to contribute
meaningfully to job creation, economic growth and more equal income distribution
(Kelley, Singer, & Herrington, 2012). SMEs are defined according to size, number of
fulltime employees, total turnover and total gross asset value. Table 1 below shows
the classification of SME according to the Department of Trade and Industry.
Table 1: Schedule of small businesses
Sector or
Subsector in
accordance with
the Standard
Industry
Classification
Size of class No of full time
equivalent of
paid employees
Total Turnover Total gross
asset value
(Fixed property
excl.)
Agriculture Medium 100 R 5 million R 5 million Small 50 R 3 million R 3 million Very small 10 R 0.5 million R 0.5 million
Mining and Quarrying
Medium 200 R 39 million R 23 million Small 50 R 10 million R 6 million Very small 20 R 4 million R 2 million
Manufacturing Medium 200 R 51 million R 19 million Small 50 R13 million R5 million Very small 20 R5 million R2 million
Electricity, Gas and Water
Medium 200 R51 million R19 million Small 50 R13 million R5 million Very small 20 R5.10 million R1.90 million
Construction Medium 200 R26 million R5 million Small 50 R6 million R1 million Very small 20 R3 million R0.50 million
Retail and Motor Trade and Repair Services
Medium 200 R39 million R6 million Small 50 R19 million R3 million Very small 20 R4 million R0.60 million
Wholesale Trade, Commercial Agents, and Allied Services
Medium 200 R64 million R10 million Small 50 R32 million R5 million Very small 20 R36 million R0.60 million
Catering, Accommodation and other Trade
Medium 200 R13 million R3 million Small 50 R6 million R1 million Very small 20 R5.10 million R0.9 million
Transport, Storage and Communications
Medium 200 R13 million R6 million Small 50 R6 million R3 million Very small 20 R1 million R0.60 million
Source: Department of Trade and Industry (Department of Trade and Industry,
2003)
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 10
SMEs operating in the railway industry face a challenge to best participate as
suppliers in the South African railway industry as the industry is dominated by
mostly by state owned enterprises mainly Transnet and PRASA (Passenger
Rail Agency of South Africa), followed by the mining and the big manufacturing
sector. However Transnet opted to position itself and contribute in the supplier
development with the purpose of improving its commercial terms in the long-
run by developing competitive local industries in its supply chain through
procurement (Transnet, 2010).
In the same vein, Kelley et al. (2012) also noted that small business
development is negatively affected by the South African market dynamics
where big firms dominate making smaller firms not able to compete with regard
to price, quality and availability of goods and services. A number of experts
emphasised the importance of supplier development in contributing to the
sustainability and growth of SMEs. This calls for a need to develop SMEs so as
to boost the economic growth.
Government’s initiatives to develop SMEs
The development of SMEs requires a multiple stakeholder approach, including
both the government parastatals and the private sector. The South African
Government initiated the Small Enterprise Development Agency (SEDA) which
is committed to nature the growth of SMEs. Some objectives are to ensure a
continued support to increase the number of SMEs and co-operatives by 2014.
These measures would be to ensure an increased contribution of SMEs and
cooperatives to the country’s GDP from the current 40% to 45% by 2014.
Amongst other government initiatives, the Department of Public Enterprises has
been implementing programmes to stimulate growth through infrastructure
programmes with the aim of levering SMEs in the railway industry through the
implementation of the Competitive supplier Development Programme to
leverage Transnet’s capital expenditure for the development of local supplier
industries (Department of Public Enterprises, 2007).
As part of the governmental initiatives to empower the SMEs, the South African
Department of Trade and Industry (DTI) has been committing to enterprise
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 11
development sub-programmes aimed at growing SMEs and co-operates by
rolling out payments and incentives. Some of the initiatives include establishing
entrepreneurship, easy access to finance to ease cost of doing business and
support through improving efficiency of organisational and institutional
arrangements (Department of Trade and Industry, 2010).
The significance of the initiatives is to facilitate industrial development
supported by government procurement to create an enabling environment for
competitiveness, growth and job creation (Department of Trade and Industry,
2010).
2.4 Supplier development
Supplier development is defined as any activity that a buyer undertakes to
improve a supplier's performance and/or capabilities to meet the buyer's short-
term or long-term supply needs (Krause, 1997). As such supplier development
is an initiative by a buying firm with a goal of improving the performance or
capabilities of its suppliers. The initiative will involve capital investment and
resource cooperatives that are supported by effective contracts between the
buyer and the supplier (Friedl & Wagner, 2012). The buying firm’s supplier
development effort will focus on the supplier’s outputs which are measurable at
the buying firm (Friedl & Wagner, 2012)
The focus of supplier development also acknowledges that there are two types
of suppliers; the one who supply critical and strategic input and the other who
supply non-critical and non-strategic products. Where a supplier of non-critical
and non-strategic product is not performing to the satisfactory of the buyer,
switching that supplier becomes an option (Handfield & Krause, 2000). The
buying firm has to make this decision taking into account that the supplier
development initiatives are idiosyncratic meaning that supplier development
initiatives undertaken with one supplier cannot be transferred or recovered from
another buyer-supplier relationship (Friedl & Wagner, 2012).
The supplier development initiatives can be categorised into two levels, the long
term and short term. One of the classifications is short term which includes
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 12
delivery, order cycle times, quality. Some of the initiatives can be less
immediate and more long-term goals such as strengthening a supplier’s
managerial product development, and operations capabilities (Friedl & Wagner,
2012).
Supplier development activities can take place in three forms. The first form
could be the compilation of information about the supplier, the evaluation of the
supplier’s performance, and the unidirectional provision of explicit information
about the supplier’s evaluation results. The second form could be the provision
of specialised and in-depth technical, process, or managerial knowledge. The
third form could be the interactive sharing of tacit knowledge through exchange
of human assets which are the employees from the buyer and supplier firm
(Friedl & Wagner, 2012).
Multinational companies which are mostly original equipment manufacturers
buy from SMEs and seek to improve their financial outcomes through operation
effectiveness (Li, Humphreys, Yeung, & Edwin Cheng, 2007). Terpend et al.
(2008) highlighted that the value sought by buyers is operational performance
which is based on the features stated in figure 1.
Value Sought by Buyers from
Suppliers
Quality
Cost
Delivery
Inventory
Speed/Lead-Time
Flexibility
Agility
Preference
Figure 1: Value sought by buyers from suppliers
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 13
Terpend et al. (2008) state that the implementations of supplier development
over the last two decades have sought the following values with respect to
supplier capability:
Global Capability,
Continuous improvement,
Technology acquisition, and
Improved NPD (New Product Development).
During supplier development, reliance on strategic suppliers has driven buying
firms to be more involved in their supplier’s activities. The activities provide
suppliers with an opportunity to improve on their capabilities (Friedl & Wagner,
2012). Some of the activities will involve onsite visits, training, staff sharing, and
work teams. Nagati and Rebolledo (2013) demonstrated that the activities
contribute to supplier’s operational performance improvement. According to
supplier development plan by Transnet (2010) the potential benefits of local
supply versus imports includes:
Removal of exposure to foreign currency fluctuations in terms of
pricing,
Lower stock level requirements,
Greater responsiveness,
Ease of communication, and
Shorter delivery times.
2.5. Buyer-supplier relationship
Supplier development will be more effective in a mature relationship and in the
presence of a competitive environment (Nagati & Rebolledo, 2013). The interest
of firms in a buyer-supplier relationship will be to improve performance in cost,
quality and delivery performance and benefits from enhanced supplier
capabilities. The buyer and the supplier will therefore need to jointly engage in
relationship-specific investments to achieve the supplier capabilities in terms of
increased managerial, product development, and operations expertise (Friedl &
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 14
Wagner, 2012). In such an environment characterised by dynamic markets or
changing relationship requirements, SMEs tend to be constrained in terms of
capabilities to respond to various relationships requirements or market changes
(Ngugi, Johnsen, & Erdélyi, 2010).
Two types of relationship focus include a long term view and a short term view.
The long term relationship will be collaborative in nature with a few trusted and
preferred suppliers (Samuel, 2014). The objective of the relationship will be to
reduce sourcing risk which is the interest of both the buyer–supplier interest.
However the long-term relationship will be gradually built (Samuel, 2014).
Systematic evaluation program of the buyer-supplier arrangement followed by
agreements formalisation will determine the type of relationship that will be
undertaken by both parties. The lack of formalised arrangement hinders the
development of long-term relationship (Mondini, Del, Netto, Regina, & Scarpin,
2014).
There are clear additional benefits that are intangible benefits that come with
long-term relationships. The benefits include inter-personal trust, friendly
relation, mutual support, team working and rapport (Samuel, 2014).One of the
common challenges with long-term supplier relationship from the buyer’s
perspectives is supplier complacency where standards can slip due to over-
familiarity and abuse of trust. On the other hand short-term or arms-length
relationship will be not desired for contracting a specialised service.
Some of the factors affecting a successful buyer-supplier relationship are
discussed below:
Human interface
Human interface is the key to building relationship between the buyer-supplier.
Wagner and Krause (2009) suggested that the degree of human interaction
moderates the willingness of the buyer to transfer knowledge to improve
capabilities of the supplier. The buying company will take further steps to
exchange employees with the supplier in order to transfer complex knowledge.
The employee exchange will intensify the interaction through the activities
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 15
between employees and further strengthen the relationship (Wagner & Krause,
2009). Studies done showed that there’s a positive relationship between buyer-
supplier relationship with the company financial performance (Mondini et al.,
2014).
A positive relationship between the buyer-supplier will be driven the co-creation
of value through resources that the two firms will combine to develop new
combination of capabilities to achieve a higher value that none of the firms
could have achieve alone (Ngugi et al., 2010). Ngugi et al. (2010) concluded
that when SMEs are in a relationship with larger customer’s innovation is also
enhanced.
Power relations
In any relationship there’s always a question of dominance over the other and
equal power relationship will be one serving the interest of both parties.
According Porter’s five competitive forces that shape strategy, powerful
suppliers could capture more value for themselves by charging higher prices,
limiting quality or services, or shifting costs to industry players. When suppliers
exercise their power they squeeze profitability out of an industry that is unable
to pass on cost increase in its own prices. On the other hand powerful buyers
force down prices, demanding better quality or more service, and playing
industry participants off against one another (Porter, 2008).
Trust and social relations
Trust is also highlighted to be a fundamental element of the way in which buyer
–supplier manages their relationships. Trust in the context of a buyer–supplier
relationship refers to the expectation that both actors will behave in a mutually
acceptable manner, including an expectation that neither party will exploit the
other's vulnerabilities (Roden & Lawson, 2014). The buyer-supplier relationship
will find itself tested by having to share sensitive information which has strategic
importance for suppliers, which could make them vulnerable during commercial
negotiations. A successful relationship will be based on trust to engage in high
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 16
social interaction exchanges and to cultivate a long-term beneficial relationship
for both the buyer and the supplier (Li et al., 2007; Morgan & Hunt, 1994; Nagati
& Rebolledo, 2013). Therefore the buyer and the supplier will need make some
adaptation to further enrich the relationship (Roden & Lawson, 2014).
When suppliers sense the absence of trust they may refrain from participating in
the supplier development initiatives. However, when trust is present the benefits
are numerous. Nagati and Rebolledo (2013) mention four of the benefits of
trust in buyer-supplier relationship.
The first benefit is that the presence of trust minimises the perception of
risk associated with behaviour by the other partner.
The second benefit is that it will guarantee loyalty which is essential for a
continuity of a long term relationship.
The third benefit is that trust builds a strong incentive for sustainable
commitment in exchanges between partners.
The fourth benefit is the trust motivates partners to engage in exchanges
with high social interaction, and reinforces cooperation (Nagati &
Rebolledo, 2013).
Overall trust will ensure the operation effectiveness of a buyer (Li et al., 2007).
The literature shows that trust is a central factor encouraging both the supplier
and the buyer to participate in supplier development.
2.6 Barriers to entry
Barriers to entry are seen as a set of economic, technological, and institutional
conditions that enable incumbent firms to both hold prices above minimum
average costs over the long term and to prevent potential entrants from making
profits at the same level as the incumbent firms prior to entry (Luk’ianov &
Kisliak, 2007). Karakaya (2002) identified the top five out of 25 barriers to enter
into industrial markets, the highest barriers to entry are:
Absolute cost advantages,
Capital requirements to enter market,
Incumbents having a superior production process,
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 17
Proprietary production technology, and
Customer loyalty.
Table 2 presents classification of barriers to entry differentiating between
structural-technological and behavioural barriers, and between strategic and
non-strategic barriers. Behavioural barriers are the most effective instruments of
impending entry of new firms (Luk’ianov & Kisliak, 2007).
Table 2: Classification of barriers to entry
Types of
barrier Non-strategic Strategic
Structural- economies product differentiation technological absolute cost advantage vertical integration specific character of assets trademarks need of capacity patents technological gap access to distributor network
Behavioural state licensing and state policy entry-limiting price formation
control over strategic resources advertising
cultural differences outlays on R&D density of product space incompleteness of information investment risks
costs of operation on foreign markets
Source: Adapted (Luk'ianov et al., 2007)
In addition to the above identified challenges, Olievschi (2013) highlighted that
some of the significant challenges encountered in railway include low direct
investment, poor infrastructure management and inefficient train operations.
The low investments result in poor financial performance viability of
concessions that could have provided steady stream of investment to the
railway industry. This poses a challenge to governments to develop long-term
strategies to improve regulatory framework for railway concessions, provide
necessary investment in railway infrastructure, and prioritise actions for
improving railway performance and acting to create a friendlier business
environment (Olievschi, 2013).
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 18
2.7 Challenges during supplier development process.
Supplier development process is simply defined as a long-term cooperative
effort by a company to upgrade its suppliers' technical capabilities, quality
delivery, and costs in view of continuous improvement Terpend et al. (2008).
The current review of literature shows that there are many supplier development
process models, however there is no unified model which is agreed upon. Most
of these models are from the buyer’s perspective (Krause, 2000; Lascelles &
Dale, 1990). The study compares the two models on supplier development
process as outlined below in Table 3.
Table 3: Process steps for supplier development.
Steps Steps Description by (Krause, 2000)
Description (Lascelles & Dale, 1990)
Step 1 Identify Critical Commodities. Establish and articulate programme objectives
Step 2 Identify Critical Suppliers Set priorities for action
Step 3 Form a Cross-Functional Team Identify key suppliers as potential long-term partners and make plans to reduce the supplier base
Step 4 Meet with Supplier Top Management
Communicate the programme objectives and methodology to key suppliers
Step 5 Identify Key Projects Assess the capability of suppliers to meet purchase requirements
Step 6 Define Details of Agreement Engage in advanced quality planning with suppliers
Step 7 Monitor Status and Strategies Formally recognise suppliers which achieve "preferred" status
Step 8
Develop an on-going quality improvement relationship with suppliers based on a free exchange of information.
Supplier development requires both firms to commit financial, capital, and
personnel resources to the work; to share timely and sensitive information; and
to create an effective means of measuring performance (Handfield & Krause,
2000). As consequence the strategy is challenging for both parties. Buyer
executives and employees must be convinced that investing company
resources in a supplier is a worthwhile risk. Lascelles and Dale (1990) findings
reveal that certain aspects of the customer supplier relationship that can act as
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 19
a barrier to supplier development. Table 4 below shows challenges that can be
encountered in supplier development.
Table 4: Pitfalls in supplier development process
Supplier side (Lascelles et al., 1990)
Supplier side (Handfietd et al., 2000)
Supplier - Buyer Interface (Handfietd et al., 2000)
Communication and feedback
Lack of Commitment Trust
Supplier Complacency Lack of technical /human resources
Alignment of organisational cultures
Misguided supplier improvement objectives
Ineffective communication
Credibility of the customer
Misconceptions regarding purchasing power
Another aspect considered vital is the challenges when starting a supplier
development process. Lascelles and Dale (1990) mention three aspects that
need to be taken into account seriously. The first is defining supplier
development objectives; this is done by defining and documenting the
fundamental requirement. The second is prioritising for action; this is done to
focus on the 20 percent that make the 80 percent of the difference. The third is
reduced supplier base where a number of small suppliers are selected working
in close proximity to the customer.
Another consideration mentioned by Lascelles and Dale (1990) is that supplier
development needs to be supported by well trained personnel helping suppliers
to achieve the objectives laid down. This is facilitated by effective
communication and feedback through selected representatives through whom
all communications are directed.
Handfield and Krause (2000) identified four major failures times during the
process of supplier development steps and these are:
during meetings of buyer and supplier management teams,
when defining key projects,
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 20
when defining agreement terms and determining metrics for success,
and
when monitoring project status and subsequently modifying strategies.
Therefore for a successful supplier development process, it is of paramount
importance for the buyer and supplier to collaborate and mitigate the challenges
encountered in each step of the development process.
2.8 Market positioning by SMEs to be preferred suppliers.
The preferred customer status is gaining momentum in supplier development
literature. Suppliers are faced with a challenge to better position themselves or
be more attractive to potential customers compared to their competitors. When
suppliers hold a preferred status, it can be a source of sustainable competitive
advantage due to a preferential treatment and to the buyer it could lead to
benefits for example an increased quality and availability of the products as well
as cost related benefits (Hanemann, 2014).
When a buyer chooses a preferred supplier in a supplier development program
that supplier is insulated from rivalry and competition due to the fact that the
supplier is now embedded with the buyer who is the customer. The prominent
role of the buyer in selecting which supplier would like to develop for its
strategic supply will manage destructive competition towards the supplier by
other supplier. Suppliers rivalry is destructive if it gravitates solely to price due
to the depletion of sustainable profits as one supplier cut prices the other
matching the new price (Porter, 2008).
The buyer-supplier relationship will still need to manage self-interest behaviour
where common aims and aspirations, mutual trust and co-operation are not
established. Lascelles and Dale (1990) stated that self-preservation can be
avoided by a new form of buyer-supplier relationship based on the principle that
both parties can gain more benefit through co-operation than by separately
pursuing their own self-interest. This strategic approach implies establishing a
long term business partnership with each supplier based on common aims and
aspirations, mutual trust and co-operation.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 21
Bottleneck Supplies
• Substitution difficult • Monopolistic markets • High entry barriers • Critical geographic or political situation
Critical Strategic Supplies
• Strategically important • Substitution or alternate supplier difficult to find • Of major importance for purchasing overall
Leverage Supplies
• Availability adequate • Alternative suppliers available • Standard product specifications • Substitution possible
Noncritical Supplies
• Availability adequate • Standard specifications of goods and services • Substitution possible
Hig
h-O
pp
ort
un
ity
H
igh
er -
Ris
k
Co
mm
od
itie
s
Low
-Op
po
rtu
nit
y,
Low
er-R
isk
Co
mm
od
itie
s
Low-Volume Purchases High-Volume Purchases
Some companies position themselves in the market with superior standing not
easy to compete with. Luk’ianov and Kisliak (2007) identified four latent
variables influencing superior standing that executives make when entering a
market. The variables are:
firm specific advantage,
the product differentiation,
financial requirements or cost of market entry, and
profit expectations.
As part of positioning in the industry, some companies strive to enter new
markets in order to preserve or increase their position, prolong the life cycle of
their products or technologies, diversify risks and broaden their access to
specific factors of production. Other companies try to impede the entry of
newcomers into the sectors in which they have already established themselves
(Luk’ianov & Kisliak, 2007).
Table 5 below is the matrix used to assess the relative importance of company
purchasing supplies. Suppliers that supply critical strategic supplies
commodities are warranted for supplier development due to the high risk and
high volume purchases (Handfield & Krause, 2000).
Table 5: Commodity portfolio matrix
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 22
Source: (Handfield et al., 2000)
A well a positioned supplier is the one a buyer will depend on for a strategic
supply (Hanemann, 2014). Therefore suppliers should position themselves in a
strategic supply portfolio so that they will be able meet the strategic obligations
of a buying company and get an advantage for supplier development. The
failure to meet the strategic obligations of a buyer will make the supplier to
loose against other competing suppliers and not be regarded as a preferred
supplier.
2.9 Chapter summary
Transnet has commited to invest about R300 billion towards developing the
railway industry however the focus on railway development has not been limited
to financial investment but also include the development of suppliers within the
railway industry (National Treasury, 2012). The CSDP is one of development
initiatives focusing on majority local procurement with sole purpose of creating
employment in SME’s supply chain (Transnet, 2010). This chapter on literature
review showed barriers faced by SMEs as suppliers and discussed the process
of supplier development. Futher literature discussions pointed out that SME’s
will need to position themselves by building relationship with buyers and
overcome cultural differences, skills levels, manage expectations and acquire
resources. A well positioned SME will supply critical strategic supplies and still
manage to overcome all the barriers which are related to the industry (Handfield
& Krause, 2000; Luk’ianov & Kisliak, 2007).
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 23
CHAPTER 3
RESEARCH QUESTIONS
3. 1 Introduction
This chapter outlines the three main research questions that the study has
explored. The first research question was to understand the barriers to entry
into the South African railway industry. The second research question examined
challenges during the supplier development process. The third research
question interrogated how suppliers position themselves as preferred suppliers.
3.2 Research questions
3.2.1 First research question
What are the barriers associated with the South African railway industry
encountered by SMEs in becoming suppliers in the market? The objective of
this question is to give insights in as to what are barriers faced by SMEs to be
suppliers of large OEMs in the South African railway industry.
3.2.2 Second research question
What are the challenges encountered during the Supplier Development
process? The objective of this question is to first establish activities in the
supplier development process and then determine challenges that lead to
failure of the supplier development process and how they mitigate those
challenges.
3.2.3 Third research question
How do SMEs position themselves to become preferred suppliers in the South
African railway industry? The objective of this question is to describe the
activities done by SMEs to positions themselves in becoming preferred supplier
development candidates for OEMs in the South African railway industry.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 24
CHAPTER 4
RESEARCH DESIGN AND METHODOLOGY
4.1 Introduction
This chapter outlines the design of the research and the method utilised to
explore the given research problems and questions on the barriers encountered
by SMEs as suppliers in the South African railway industry. The chapter clearly
discusses the research design and approach, the population and the
geographic area where the research was conducted, how the sample and
sample size were selected and finally how the data was collected and analysed.
4.2 Research philosophy
Research philosophy simply describes the nature of knowledge and how the
very same knowledge is developed. This study adopted an interpretivism
philosophy which ‘advocates the necessity to understand differences between
humans in their role as social actors’ (Saunders & Lewis, 2012, p.104). In this
instance, the researcher’s values played a part in the research process. The
barriers encountered by SMEs as suppliers in the railway industry were
determined subjectively depending on the social actor. Finally the researcher
adopted a notion of being a ‘feeling researcher’ who was concerned with
feelings and attitudes of subjects (Creswell, 2012; Saunders et al., 2009).
4.3 Research design
The research project followed a qualitative approach with an exploratory view
on the basis that the specific topic in the context of the railway industry and in
South Africa is not well researched. An exploratory study sought insight into an
occurrence which is useful in discovering general information about a topic that
is not clearly understood (Saunders & Lewis, 2012). It was acknowledged that
Supplier Development is one of the topics of interest; however there is scarcity
of research in the railway industry. Furthermore barriers encountered by SMEs
as suppliers have been minimally researched with the railway industry.
Therefore a qualitative study provided a depth insight about the phenomenon
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 25
being studied (Saunders & Lewis, 2012). The exploratory approach was used to
provide the researcher with an opportunity to conduct in-depth interviews, to
probe for answers and explanations where clarity was sought. The research
questions were designed such that an exploratory qualitative research method
was appropriate and relevant in answering the research questions (Saunders &
Lewis, 2012).
4.4 The sample size and frame
The sample size consisted of 9 companies. The list of companies was drawn
from the Transnet attendance registers published online for suppliers attending
railway projects briefing. The register list was used as a sample frame
(Saunders & Lewis, 2012). To meet the SMEs categorisation, the companies
had a turnover of R0.2m to R51m and 5 to 200 employees (National Small
Business Amendment Act, 2003).
4.5 Population sampling
A non-probability purposive sampling was used select the 9 companies. In
purposive sampling the researcher used the best judgement to actively select
the respondents who were able to answer the research questions and provide
the most information about the topic explored (Saunders & Lewis, 2012). The
selection criterion for this study was SMEs that are actively involved in the
railway industry as suppliers. Therefore the 9 companies were selected based
on their participation in the railway industry as suppliers.
4.6 Research instrument
Data was collected using a semi structured interview schedule which had three
sections. Section A focused on Barriers to Entry, Section B focused on
challenges during supplier development process, and lastly Section C gathered
data on the market positioning by SMEs to be preferred suppliers. All of the
interview questions were open ended with the aim of motivating the
respondents to openly share their knowledge, feelings and experiences on the
subject matter. The full discussion guide is attached in the Appendix A. The
questions were adapted from the literature review.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 26
4.7 Data collection
Data was collected through a face to face interview guided by semi-structured
questionnaire. In each company, interviews were conducted with an individual
who at least an executive. The interviews were recorded with an electronic
recording device after consent of the interviewee. Notes were taken to highlight
further follow up points with the interviewee.
4.8 Data analysis
The study used general inductive qualitative data analysis approach for
analysing the collected data. The objectives of conducting an inductive data
analysis were to reduce the raw data into a brief summary report; to explore the
interrelation between the research questions and raw data findings; and lastly
develop a framework based on the raw data findings. This method proved to
have produced reliable and valid findings (Thomas, 2006). Figure 2 below
depicts the steps that were followed to analyse the data.
Figure 2: Qualitative data analysis
The data collected was in audio form and the audio files were transcribed and
coded into a text document. The following process steps were followed in
analysing the data in the research:
1. Organising & preparing data for
analysis
2. Closely reading the data
3. Coding process 4. Revision & refinement of
category system
5. Interpretation of results
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 27
First step of analysing the data, the researcher started by organising
and preparing data for qualitative analysis. This step included matching
the transcripts to the company audio interview with the interview code
name.
Second step the researcher closely read the data to be familiar with its
contents and gained an understanding of the themes and events covered
in the text.
Third step the researcher commenced with the coding process, which
was simply the creation of categories. These categories were defined
and coded manually using an excel spread sheet.
Fourth step the categories were revised and refined to check for the text
that may have been coded in more than one categories and the text that
is not assigned to any category. In each category the researcher
identified subtopics including the contradictory statements and new
knowledge created.
Fifth step the researcher interpreted the results and link them with the
research questions and the literature review. New information was
contextualised for further analysis and for future study (Thomas, 2006;
Leedy & Ormorod, 2010).
4.9 Reliability and validity
To ensure reliability, the transcripts were rechecked to rule out obvious
mistakes during the transcription process. The researcher ensured that all
codes are properly defined. For validity, the researcher used a peer debriefer to
ensure that the findings of the study will resonate with other people than the
researcher. In addition the researcher ensured that the ‘situations are described
in rich, thick detail that will enable readers to draw their own conclusions’
(Leedy & Ormrod, 2010: pg. 100).
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 28
CHAPTER 5
RESEARCH FINDINGS AND ANALYSIS
5.1 Introduction
This chapter presents the findings from the structured interviews conducted and
the analysis of the results. The audio interviews were recorded and transcribed
into text for data analysis. Patterns and themes were identified and examined in
how they help answer the three main research questions.
5.2 Respondents profile
Nine company executives from SMEs supplying the railway industry were
interviewed. The executives were Managing Directors and Chief Executives
Officers (CEO) of the companies. The respondents were eight males and one
female and the scale maybe attributed to the observation that the South African
railway industry is male dominated. The ages of the respondents ranged
between 45 and 73. The number of years they have been with their respective
companies is between 10 to 32 years. All companies that participated in the
study have their head offices in Gauteng with a few having operational
branches outside of Gauteng.
5.3 Themes presentation from the findings
The findings were grouped according to the three main research questions and
the respondents’ data was categorised into themes and subthemes. The
respondents’ data indicating their attributed views will be presented. The
responses from the sub-themes will then be summarised.
5.3.1 Themes from the first research question
The following table presents the themes and subthemes related to the first
research question about barriers encountered by SMEs in becoming suppliers
in the South African railway industry. Six themes were extracted from the
respondents’ data as the main barriers encountered by SMEs in the railway
industry. The themes of barriers are industry specific human capital, industry
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 29
regulation, industry specific capabilities, building buyer-supplier relationship,
government interventions and resources.
Table 6 : Barriers to entry themes
Themes Sub-themes
Industry specific human capital Unique skills shortage
Skill development
Industry regulations Approved list of suppliers
Accreditation
Product approval process
Supply chain policy
Industry specific capabilities Incompetent pricing
Prior experience as a supplier
Intellectual property
Volume scale
Building buyer-supplier relationship Trust
Exclusivity agreements
Flow of information
Government interventions Labour dynamics
Black Economic Empowerment
Resources Compliance cost
Financial support
Specific equipment
a) Theme 1: Industry specific human capital
The industry specific human capital was a central theme that respondents
highlighted as one of the major barriers faced by the SMEs in the railway
industry. The subthemes relating to the industry specific human capital were
unique skills shortage and development of skills. The responses attributed to
the respondents are organised according to the sub-themes.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 30
Subtheme 1: Unique skills shortage
The railway industry requires unique skills that are based on safety work ethics.
Respondents indicated that SMEs find themselves in a predicament whereby
they must have skills that are specific to the railway industry, and without the
unique skills required they will not be able to participate as suppliers. In addition
respondents also raised the challenge of finding the matching skills in the
railway industry.
Respondent 1: “different skillset that is obviously specific to rail…so the
abundance of skill in that industry is not there. And that is in addition to
generally the skill level in terms of engineering being a big problem”.
Respondent 6: “…skills to be able to operate at their required level,
they don’t exist in the country. The skills are just not there.”
Subtheme 2: Skill development
Skills development was also highlighted as challenge as on job training requires
ongoing projects where new skills can be developed. Some of the underlying
causes are attributed to the notion that the cyclic investment in the railway
infrastructure did not keep the supplies of new expertise coming into the
industry. The development of some of the signalling expertise also posed as a
challenge as it takes years of practice.
Respondent 6: “…developing the skills in house and it takes time and it
doesn’t mean that you get this sudden ramp up in your skills. So I believe
skills are a big challenge for us in this country.”
Respondent 5: “..need to train your people, I send my guys for training
so they can learn more about it, I am small but I spend the money
because I feel I am uplifting the country..”
b) Theme 2: Industry regulations
The industry regulations were a central theme of responses that showed that
bureaucratic requirements for compliance are barriers faced by SMEs in the
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 31
railway industry. The subthemes were approved list of suppliers, accreditation,
product approval process, and supply chain policy. The responses attributed to
the respondents are organised according to the sub-themes.
Subtheme 1: Approved list of suppliers
Respondents highlighted that there are industry regulations processes where
suppliers need to comply through certification or approval process. The
approved list of suppliers is recognised by PRASA and Transnet Freight Rail,
who then approve those suppliers on the list for a particular type of service.
There were various perceptions with regard to the approved list of suppliers. On
one hand a respondent who was not on the approved suppliers’ list complained
about inability to be a supplier due to their company not being on the approved
list. On the other hand a respondent who has been in the approved list for more
than 30 years complained that new suppliers are coming to the industry without
being on the approved list. One other respondent who has been the new player,
who started his company five years ago and recently added to the approved list.
The respondent attributed the success by recruiting experienced personnel.
Respondent 5: “they say if you are not approved by PRASA you cannot
do installation, there are only 4 companies approved in the country”.
Respondent 3: “health and safety in SA is actually becoming stupid
because as I say in the old days you had to be approved, today I don’t
know if you have to be approved, you can just quote.”
Subtheme 2: Accreditation
The accreditation process which is used by the customer to gauge the level of
competency the supplier was also found to be a barrier. SMEs must be
accredited with the accreditation bodies like ISO 9001 and the IRIS
(International Railway Industry Standard).
Respondent 2: “...for the local builders, we are prepared to align
ourselves with those accreditations but we don’t know what the
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 32
requirements are and we just asked them for their support, to guide us
into trying to achieve those accreditations. We have currently just been
re-accredited for ISO9001..”
Respondent 1: “there are specifications that you need to have, maybe
like IIRIS and a few other industry-specific – although maybe not industry
but you need to have the certifications because you are operating at a
much higher level.”
Subtheme 3: Product approval process
The product approval process is also regarded as the gate keeping to purging
out suppliers who do not have expertise and facilities. Respondents highlighted
that the product approval is the longest process and sometimes ambiguous.
One supplier complained that his product was not yet approved for a pilot
installation despite knocking the Transnet Freight Rail door for the past three
years. SMEs which are direct suppliers to OEMs have to pass through stringent
auditing which hold up resources for the entire auditing duration.
Some of the challenges highlighted are that the projects in the railway industry
take more than five years due to delays of equipment approval.
Respondent 8: “after only 5 years we got approval to work on their
infrastructure which was a lengthy and costly exercise to get the go head
to say – now you are allowed to tender”
Respondent 3: “the old signalling section which we were involved in
there were a lot of barriers there, the main one was ‘you want to bring
your equipment in, you manufacture it and you give it to us to prove it.
Once it’s proved, you’re in”.
Subtheme 4: Supply chain policy
Majority of the respondents regarded the supply chain policy used by Transnet
and PRASA as very frustrating and there is a lack of understanding of the
supply chain. The respondents also raised concerns about supply chain
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 33
requirements that make some of the suppliers to be disqualified. SMEs find
themselves pressured to conform to the buyer’s supply chain.
Respondent 1: “problem of not only looking at yourself as an individual
company but you also have to look at your supply chain because the
supply chain has to conform to the requirements of the buyer”.
Respondent 2: “But a lot of the new tenders coming up now don’t
actually relate to SMEs, they have actually changed the strategy, they
now go large enterprises.”
c) Theme 3: Industry specific capabilities
The industry specific capabilities were a central theme of all of responses that
showed that inadequate capabilities specific to the railway industry are barriers
faced by SMEs. The subthemes were incompetent pricing, prior experience,
intellectual property and volume. The responses attributed to the respondents
are organised according to the sub-themes discussed below.
Subtheme 1: Incompetent pricing
Challenges identified with pricing are the lack of competitive pricing due to the
compromised position of suppliers. The respondents who are new players
stated that one need to competent in pricing. The respondents mentioned that
fixed prices can be enforced by OEM due to the buying power over
subcontractors, negotiating leverage of competitors who are holding product
patent and lastly taking into account development cost in the pricing which
makes the suppliers not competitive compared to established international
suppliers.
Response 2: “We did find in terms of pricing, when you price a piece of
equipment that is going to be built SA local, yes you will achieve your
threshold 60/65% target but that does not necessarily mean your price
will be cheaper than imported content”.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 34
Respondent 4: “The challenge is mainly pricing, because you have the
OEM, when the OEM secures a contract it is a fixed price, and when you
submit or when we submitted our price, there was no opportunity to
renegotiate the price with the client or the end customer. You do not
know what the market rates are, you might know what X costs and so
forth, but in terms of competitively pricing, and you have no idea.”
Subtheme 2: Prior experience
The respondents also highlighted prior experience demanded by Transnet and
PRASA as a challenge. The lack of prior experience influences the
inexperienced suppliers to be subcontracted to the bigger suppliers. Some
established suppliers would like to keep the status quo by questioning the
credibility of emerging competitors in the industry based on their previous
experience in the railway industry.
Respondent 3: “.you find these okes have no experience! And they are
going to do a project like that”!
Respondent 4: “..ever met in the railway industry, they had no
experience at all and we don’t know how they were invited, as I have
pointed out we were just invited”.
Respondent 2: “..people want to know your history of this kind of work.
And you don’t have a lot of history because it is a totally new product, but
you got to have some sort of opportunity to get into the market”.
Subtheme 3: Intellectual property
Intellectual property was regarded by the suppliers as the main concern of
technology transfer when OEMs are outsourcing to local suppliers. Some
information on the intellectual property is withheld from suppliers when working
with OEMs. The feeling is that some of the prohibited information limits the level
of collaboration between the buyer-supplier relationships.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 35
Respondent 2: “you are prohibited from going any further.. I think the
feel of that is if they give you that information they are giving you their
intellectual property – which is the big thing.”
Respondent 5: “it is their technology, it’s not my technology, I am
installing the technology but I cannot test the technology.”
Subtheme 4: Volume scale
The respondents mentioned that the share size of scope given to them is a
limitation to get an economy of scale discounts which could make them
competent when compared to imported similar products. Therefore the South
African scope of work is not big enough for South African suppliers to get good
deals from international component suppliers.
Respondent 6: “They say to me ‘go away, we are not interested in your
business! We manufacture 10000 compressors a day. If you are coming
to us and saying you want to talk to us about 100000 compressors then
you get our attention, then we start talking. For 233 compressors, he
says if you don’t place the order on me I don’t see the difference in my
turnover, because the number is so small”
Respondent 2: “…because you are buying volumes you can get better
pricing structures, you can even force the company to employ more
people”.
d) Theme 5: Building buyer-supplier relationship
Ability to form buyer-supplier relationship was a central theme of responses
related to the activities of human interaction by the SMEs in the railway industry.
The subthemes were trust, exclusivity and limited access to information. The
responses attributed to the respondents are organised according to the sub-
themes.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 36
Subtheme 1: Trust
The respondents regarded nurturing relationship as the most valuable in
sustaining business. Most of the respondents mentioned that gaining trust from
the customer is significant and it is the main barrier in supplier development.
The challenge with building trust is that it takes time, however with persistent
excellent service delivery; suppliers can win the customers trust.
Respondent 8: “if you want to put a product forward as a small business
they don’t have the trust in say for instance your … to say ok, but your
product is ok, we can pilot it, you have to go through lengthy and costly
processes to get a product in”
Respondent 3: “You know in business there is a certain trust and it has
got to be a trust from your company and their company and once you
overcome that barrier which wasn’t too difficult, everything worked.”
Subtheme 2: Exclusivity
The respondents pointed out that exclusive supplier contracts enforced by one
OEM are a barrier for them not to expand the scope of supplying to other OEMs
customers.
Respondent 1: “We have been prohibited to go north, because of the
sector that we agreed on exclusively – which is another problem.. if you
take for instance these challenges in terms of exclusivity, I mean you
can’t do much”.
Respondent 6: “The unit I build for X is custom for X, I don’t sell it to
anyone else, I am not allowed to. I tried to by the way, and X gave me a
big rap over the knuckles and said I am not allowed to”.
Subtheme 3: Flow of information
Respondents identified customer access for open dialogue as a challenge.
Emerging SMEs are kept at arm’s length without clarification on key information
that will make them competitive. Emerging SMEs will have to overcome lack of
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 37
competitive information only by acquiring it through networking which takes a
long time to build and key informative individuals at times avoid to be seen
communicating with emerging SMEs. In addition OEMs do not clearly articulate
the specifications and technical information needed and allocate the right
personnel to provide answers on the spot.
Respondent 2: “they give you information to a certain extent. If they
give you a complete drawing you will probably be able to follow the
drawing right throughout but somewhere in the schematics they will put a
block that you can’t go and … you are prohibited from going any further.”
Respondent 5: “not write a proper description, he will make a very
vague description but he knows he is going to get a sweet from Tom
because Tom knows him and he phones and says – is this what you are
looking for and he says”
Respondent 3: “Access, firstly how do you gain access to the
procurement people; it is not like you can call someone and you can
discuss these issues.”
e) Theme 5: Government interventions
Some of the barriers encountered in the supplier development process revolve
around the activities directly attributed to government interventions. The
subthemes identified were the labour dynamics and black economic
empowerment. The responses attributed to the respondents are organised
according to the sub-themes.
Subtheme 1: Labour dynamics
The respondents highlighted challenges in the South African labour dynamics.
Suppliers must adhere to job creation thresholds as a requirement for fulfilling
certain contractual requirements. Ability to fulfil labour cost increases will
sometimes be affected by foreign exchange rates which are outside the scope
of SMEs.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 38
Respondent 6: “..I have no control over labour increases, I get told what
to do. I have no control over exchange rates, it is what it is. So for us to
be competitive from a price space it makes it very difficult..”
Respondent 1: “..As a small supplier it is very difficult, as well as the
local content as well, because there are thresholds in terms of the labour
content that we need to adhere to, given the obligations that most of the
OEMs have in the industry..”
Subtheme 2: Black Economic Empowerment (BEE)
The respondents stated that government interventions are significant in forcing
OEMs to commit in localisation which will result in growth in small firms. Another
challenge mentioned by respondents is the implementation BEE. All
respondents supported BEE however they find it difficult to implement it, in
small businesses and it takes long to get the credentials.
Respondent 6: “The third challenge for us is really BEE ... my question
is how I implement it in a company my size?”
Respondent 3: “It took us all of between 8 to 10 years to get the right
credentials to go BEE.”
f) Theme 6: Resources
The required resources were a central theme of responses related to the
resources challenges faced by the SMEs in the railway industry. The
subthemes are compliance costs, facilities management, financial support and
specific equipment. The responses attributed to the respondents are organised
according to the sub-themes.
Subtheme 1: Compliance costs
The majority of the respondents stated that they were facing challenges in
operating their business during the low order period where the costs of getting
business are escalated due to all the compliance required.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 39
Respondent 6: “Approval processes through Transnet is difficult to
follow and costly”.
Respondent 1: “I mean if you are developing supplier, at least 30 days
or better still an advanced payment, you know such interventions would
make development smoother”
Subtheme 2: Financial support
Financial support is required to upgrade properties and setup new facilities.
Some respondents have been disappointed by expecting BEE investors to be
financed by the banks for empowerment shareholding in their company. Setup
cost for starters at the initial face is the most challenging.
Respondent 6: “I think for any business man that has worked his whole
life to build a business up, if you ask him ‘give away 25% of your
business, just give it to someone’ – anyone is going to go ‘hm, that really
is a challenge for me, to accept that”.
Respondent 2: “I think the small SMEs are facing is obviously the initial
investment to set up production line, set up costs is quite horrendous,”
Subtheme 3: Specific equipment
The respondents also mentioned that the required specific equipment is
important for them to qualify for certain services and if they are not having
equipment specific to the railway industry they cannot be suppliers.
Respondent 1: “So it is one of the problems, because what that forms is
you have to have different equipment or slight additions to equipment,
different layouts of the factory”
Respondent 2: “you are looking at equipment, tooling and things like
that, because in SA predominantly there are not very many companies
manufacturing rail type components”
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 40
5.3.2 Themes from the second research question
The following themes and subthemes are related to the second research
question about the supplier development process activities, challenges
encountered during supplier development process and how SMEs mitigate
those challenges. The main themes are a) supplier development activities, b)
challenges in supplier development and c) mitigating challenges encountered in
supplier development.
a) Supplier Development process activities
Table 7: Supplier Development process activities
Theme Sub-themes
Supplier development activities
Search for opportunities
Approach the potential players
Enquire what the buyer wants
Prepare resources
Meet with the buyer
Agree on the product specifications
Make a contract
Produce and deliver the product
Continuous Innovation
Sub themes 1: Search for opportunities
Suppliers start by searching for opportunities and this will include public tender
bidding, approaching OEMs and submitting proposals. Other experiences are if
it is an international buyer, the buyer normally approaches the local supplier.
But for local activities the supplier must look out what is happening in the
market so as to find buyers.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 41
Respondent 6: “But as a rule you have got to go out looking for the
suppliers, you have got to lick their backsides to be a supplier… One big
challenge we have in this country is that most suppliers – I don’t believe
we are one of them – most suppliers have an attitude of waiting for work
to come to them”.
Respondent 2: “most rail engineers overseas, they find out, they go to
the railway cars and they say ‘okay, who suppliers you this, that, that,
that’ – and they say ‘A, B, C and E countries’ and then they go and do
their homework and they find in the suppliers who they actually want to
get involved with.”
Sub themes 2: Approach the potential players
After identifying the opportunities SMEs will approach the key role players or
buyer to make a presentation specific to the OEMs. With the public entities
opportunities, suppliers will wait for open tenders.
Respondent 6: “we approached company X and said we know that local
content is going to be a requirement, are you interested in talking to us?
And they said ‘absolutely’. So we flew out, sat with them and that is how
the process started”.
Respondent 4: Like I said, how we got hold of these big companies, we
just responded to open tenders, we buy a tender document, we attend
the site briefing, then we establish the contacts, we approach them and
would you be interested in going into a joint venture with us, we sit and
discuss”
Respondent 4: “with the private entities, the OEMs for example, you can
become a preferred supplier, either by approaching the entity and they
look at your company or what, and if they accept you they place you on
their database.”
Sub themes 3: Enquire what the buyer wants
The enquiry process is where the supplier and the buyer start engaging. The
interaction starts with the communication of information about the project or
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 42
product and at the same time the buyer provides product specification to the
supplier.
Respondent 6: “I don’t think there is anything different to what we
already do. As I said, we got the question; we asked for the
questionnaire, we said ‘tell us what you want to see so that we can
prepare ourselves’ ”.
Respondent 2: “What we did find for us critical is obviously what is the
client’s expectations. He gives you a specification and what does he
expect, does he want us to meet those requirements or something more
than that?”
Sub themes 4: Prepare resources
In order to comply and meet the buyer’s expectation suppliers will prepare
resources which could be facilities and expertise. Preparing the resources is
part of the process where resource projection is made about the type of work
expected.
Respondent 6: “we said ‘tell us what you want to see so that we can
prepare ourselves’ and then we went through a process of analysing
that, assigning to people, if you are going to do this I will do that, I will
make sure we have prepped ourselves properly so when Company X
walks in we can show them we have these things and what we don’t
have”.
Respondent 7: “Currently in SA there is about 18 accredited signalling
engineers, people that can do testing.. out of the 18 we appointed 8 into
our company, and suddenly the three big OEM’s Company X, Company
Y and Company Z realized that they didn’t have one, and here is
Company A that have got 8. And it forced the big companies to start to
look at us to say ‘here is now an installer of technology.”
Respondent 1: “we have to employ consultants, so that somebody
comes to tell you that if you are pitching for this business this is the way
you should be operating it. This is what you need to do, and obviously
you don’t possess those capabilities so you have to buy it out”
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 43
Sub themes 5: Meet with the buyer
Meetings will be arranged between the supplier and the buyer where face to
face discussion will be taking place. The meetings are focused on discussion of
terms and conditions, auditing of supplier’s capabilities by the buyer and back to
back contract discussions.
Respondent 5: “The best thing I have found for myself is by sitting down
with the client and the main contractor and trying to understand the real
requirements, although it’s not detailed on drawings yet, they are not
properly defined by expressing but with the experience sometimes you
can read between the lines and you can feel you get what they want.”
Respondent 3: “I mean we go to site meetings and you see all these
people there...”
Sub themes 6: Agree on the product specifications
Agreeing on the specification is one of the major milestones a supplier will
reach with the buyer. The process will be iterative until the final product
specification is signed.
Respondent 2: “So the entire process is supposed to be a full blown
circle of commitment by all parties involved - engineering, buying, what
have you. So for us is to build up a prototype, and work very closely with
the client and keep him in the loop all the time, every stage of the profile
boat.”
Response 5: “sitting down with the client and the main contractor and
trying to understand the real requirements, although it’s not detailed on
drawings yet, they are not properly defined by expressing but with the
experience sometimes you can read between the lines and you can feel
you get what they want, but it might not be the other percept but because
they see you are willing and you put yourself out,”
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 44
Sub themes 7: Make a contract
Signing the contract is seen as the suppliers as the breakthrough in securing
work from the buyers. The suppliers are expecting the contract agreement to be
followed by a purchase order. The purchase order will give contractors the
means to start acquiring resources in house.
Respondent 1: “we would have wished for there to have been a bit more
clarity in terms of what it is, like an order or something. We understand
there is not going to be a problem but we still don’t have something in
black and white, enough for us to go and contract for that, the factory
size that is required for the level of production that we are pitching for.”
Respondent 7: “we obtain the contracts, we are executing the contracts,
the DTI came in and said they will assist with more capital because it is
expensive, and they will assist us by putting systems into the company to
make this company to where we believe it can be.”
Sub themes 8: Produce and deliver the product
Producing the product and delivering the product is seen as a step where
reputation and recognition can be enhanced for future sustainability. Other
future contracts can be sourced through the reputation gained with the one in
hand.
Respondent 2: “So I am going to go and create the product, build
prototypes and what have you and then I am going to take that product
and go to the OEMs”.
Respondent 8: “you must deliver on what you promise, you must not tell
the OEM you will give them this and then deliver something else.”
Subtheme 9: Continuous Innovation
Innovation was regarded by the respondents as a way of competing in the
product development space. After a successful product delivery the
respondents mentioned that continuous innovation and product development is
significant.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 45
Respondent 2: “…will be replaced with a similar product with a little bit
more innovation and a little bit more development made on that. Look at
your product from time to time, every six months or year, and say ‘what I
can do, what innovation can I do to my product to make it a little more
advanced.”
Respondent 3: “as you go along the technology develops and you have
either got to be ahead or aligned with the development and you can
follow the development”.
b) Challenges during supplier development
During the supplier development process there are challenges that the suppliers
face. The themes below were extracted from the respondents. The themes of
the challenges faced by suppliers during the supplier development process are
long supplier development process, ineffective communication, lack of
transparency, lack of understanding, incorrect product specification information
and infrastructure challenges.
Table 8 : Challenges during supplier development process
Theme Sub-themes
Long supplier development process
Long on boarding process
Long decision making process
Miscommunication and feedback
Ineffective communication and feedback
Lack of transparency Lack of transparency
Product specification information
Buyer’s lack of understanding on suppliers specific capabilities
Vague production information
Lack of product knowledge
Lack of details on product requirements
Lack of flexibility on product specifications
Appropriate facilities Acquiring new facilities
Facility upgrades
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 46
Theme 1: Long supplier development process
The respondents mentioned that the decision making processes and getting
back to suppliers as are very long specifically for state owned enterprises and
some big multinationals OEMs. Long boarding process is mostly experienced
from OEMs.
Sub-theme 1: Long on boarding process
The respondents regarded the on boarding process as long as the buyer needs
to ensure that the supplier has the capability in the beginning stage and also the
ability to participate fully in the process.
Respondent 1: “Now just the length of time was the problem. So those
are some of the things that we have had to go through, the long on-board
process, during which one goes through this and the other”. Now just the
length of time was the problem, you know, because now there has to be
a whole lot of comfort that a buyer needs to have in terms of 1) your
capability at founding stage, at base stage, and 2) your ability to absorb
the development”.
Respondent 1: “..requirements are typically way beyond anything we
have seen before – not so much in the technical requirements for a
product, that is normally not a challenge for us, it is in the other stuff –
the reliability documentation, and the life cycle costing and the
maintainability and all these things are things that Transnet doesn’t even
ask for..”
Sub-theme 2: Long decision making process
The respondents pointed out that the decision making process specifically from
the two major state owned enterprises Transnet and PRASA takes lone time,
may be attributed to the organisational communication line to be followed.
Respondent 1: “But one of the problems is that decision making takes a
long time, I suppose because of the hierarchical structure, you know,
because for instance by now we would have wished for there to have
been a bit more clarity in terms of what it is, like an order or something”.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 47
Respondent 6: “the budget has been allocated and it has been pointed
out that this is an urgent program, but nothing is taking off the ground!
You see because of some internal politics or what!”
Theme 2: Miscommunication and feedback
Communication between the customer and the supplier was regarded by the
suppliers as the most challenging. Respondents are of the view that perhaps
face to face engagement or interaction with the customer can mitigate some of
the miscommunications and lack of feedback encountered.
Respondent 2: “He doesn’t know that so he has to get the information
from engineering - and if engineering doesn’t give him that information
there is miscommunication. So the entire process is supposed to be a full
blown circle of commitment by all parties involved...”
Respondent 4: “you actually don’t get feedback from the client; they
might say ‘no, you were unsuccessful in this bid or tender because of
price’ and that is all, but you don’t know your competitors prices.
Otherwise you can just continue pricing blindly you see, so that is the
biggest challenge.”
Theme 3: Lack of transparency
The respondents complained about lack of transparency in processes where
special programmes will be initiated where suppliers will be invited through a
known process and other through an unknown process.
Respondent 4: “One of the major issues is the lack of transparency to
say on these supplier development initiatives and the public entities, how
are these companies nominated or elected to these programs?”.
Respondent 8 : “..and you as a small medium sized company that is
under contract as say for instance a sub-contractor to them, you can’t
open your mouth otherwise they will just kick you out,”
Theme 4: Product specification information
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 48
The respondents highlighted that there are challenges when dealing with
customers in product development where specifications are communicated. The
challenges are buyer’s lack of understanding on the specific capabilities, lack of
product knowledge, lack of details on product requirements and lack of flexibility
on product specifications.
Subtheme 1: Buyer’s lack of understanding on suppliers specific
capabilities
Respondents stated that some of the buyers lack an understanding of the local
supplier’s capabilities in context of what their expertise and capabilities are.
Respondent 1: “understanding of the OEMs in terms of capabilities
here is not in line; but you should be able to do this or have this but on
the ground it may not actually be possible and then you find you are
negotiating not to the same level and you have to somehow give and
take to meet half way – that impairs speed also of your absorption of
this development because if an OEM thought this is the level you should
be and you find you are there, then we know we have to go one step
lower when it comes to development”.
Respondent 6: “And in the first six months of dealing with company X
we were just told ‘do what the spec says, do what the spec says’ – and
they were clearly not wanting to hear our opinion…And after six months
something shifted in company X and they realized that we are not your
typical air conditioning builder, we actually have true design skill.”
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 49
Subtheme 2: Buyer’s lack of product knowledge
Respondents stated that one of the challenges in dealing with personnel from
the customer side is that they are not versed about the product they are trying
to source. When quotation is forwarded they will not be having all the
information required to provide a solution.
Respondent 5: “they even send you information which does not even
make sense, when we question them they say – that is it, if you don’t
understand sorry..”
Respondent 6: “What I did find in my recent years is the people on the
other side that you are selling the product to, the knowledge of the
product is insufficient. To them they know it is a speed prop, they don’t
have a clue what it does, what is the purpose of it. If you changed it to
something else slightly to them it doesn’t register, if you try and give
them a product that is slightly more advanced than what the spec
requirements are, to them they don’t understand the product”.
Subtheme 3: Lack of details on product requirements
When enquiries are made for a particular product, some respondents
complained that customers are not giving full details about products
requirements and services required. Respondents further complained about not
properly communicated specification when working with customers. The
subsequent challenge will be to escalate to the correct person who can provide
the answers.
Respondent 5: “they do not write a proper description, he will make a
very vague description…. I don’t mind receiving quotes like this but then
you must give me detailed specs, so then I can quote as per the detailed
specs and we can then see, I need to see the size of the rack and what
you need inside the rack.”
Respondent 5: ”we are prepared to align ourselves with those
accreditations but we don’t know what the requirements are and we just
asked them for their support”
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 50
Subtheme 4: Lack flexibility on product specifications
When working on the product development the supplier will notice a flaw in the
current product specification. When the flaws are identified and design
modification are proposed to the customer specifically the big OEMs they will
insist on specifications that are no-longer relevant for the current environment
which constraint and undermines the experience and expertise of the local
supplier.
Respondent 6: “And they told us how it would be built and how it would
look and they virtually told us the design. Not quite, but very close. They
constrained it so heavily that what we built we had no other option than
to build exactly what they told us to build….my engineers found this
extremely difficult because we were being very prescribed to how it
would be”.
Respondent 1: “these specifications are ‘you shall use this wire’ ‘you
shall use X’ – even maybe where there could be alternatives that could
be good enough. Maybe they could look at equivalents but they take time
to be developed maybe to a standard, and some of them have to be
tested abroad in terms of integrity. So all of these things are some of the
challenges that we have experienced in the process of development”.
Theme 5: Appropriate Facilities
Once the SMEs are put in the supplier development process, they find
themselves faced with a challenge to acquire new facilities to match the
volumes that are going to be produced and some having to upgrade their
facilities.
Subtheme 1: Acquiring new facilities
Some SMEs who have gone through the auditing process by OEMs have been
advised to seek new facilities where they will be able to execute the volume of
work focused in the next few years. The new infrastructure will enable suppliers
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 51
to have the infrastructure that will place them in a strategic position to be able to
handle future contracts.
Respondent 2: “what you are going to have to do, you are going to have
to build a little factory or we go and look at it and say for us to have a
decent result”
Subtheme 2: Facility upgrades
Existing infrastructure is upgraded to expand production capacity of new
secured contracts and to ensure new product can be introduced.
Respondent 2: “your pricing structure is separated, where there is a
portion of money that is allocated outside the physical build of the
product, so that portion of money is maybe to upgrade your facility.”
Subtheme 5: Culture alignment
The South African opportunities in railway have attracted international OEMs
from different parts of the world. The respondents recognised cultural
intelligence as a catalyst in overcoming misunderstandings at the courtship
stage. Challenges encountered are language barriers, corporate culture and
expectations in the level of technological development.
Respondent 1: “..for instance the Chinese, we have a language
problem, a huge language problem, so the medium of business language
is very difficult, and we battle to translate and their whole way of working
is entirely different.”
Respondent 8: “we will align ourselves to what they want and our
strategy where it is, is to make them successful with whatever project,
because if the OEM is successful they will come back to us and there will
be more work for us.”
c) Mitigating the challenges in supplier development
SMEs have found their way of surviving in the competitive environment where
the customer demands are unprecedented. Meeting the customer expectation
specifically the OEMs who are used to the European standard of production are
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 52
stretching the suppliers to new level of operation. The subthemes of how
suppliers mitigate challenges in supplier development are tabled below.
Table 9 : Mitigating challenges in supplier development programme
Theme Sub - themes
Mitigating the challenges in
supplier development
Openness
Get advice from consultants
Recruiting and outsourcing the lacking skills
Get assistance from governmental programs
Joint ventures with OEM
Subtheme 1: Openness
Suppliers are building relationships by opening themselves to the buyer’s audits
necessary to satisfy their comfort with suppliers standing. The supplier will play
open cards with the buyer and having honesty about the challenges they may
be having.
Respondent 1: “And again I suppose because we laid out our cards on
the table as a very first step, to saying open up our books and we don’t
have any hidden agendas. In terms of how we interact you know what we
do, we don’t have any skeletons and then if you know what we are doing
then you are better able to help us”.
Respondent 6: “We also believe in honesty so we played very open
cards; when they asked for things like LCC (Life Cycle Cost) we would
say ‘sorry, we don’t have that’. What was your expectation because then
we can work on it in the future, but currently we don’t have that”.
Respondent 7: “we don’t hide, we are very transparent and I think that is
how we operate in corporate and we are bringing that corporate thing
into our company.”
Subtheme 2: Recruiting and outsourcing the lacking skills
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 53
Capabilities that are not core will be outsourced and some are being bought out
in the market. Capabilities will be assessed based on the strategy of the
business on how they plan to handle forth coming contracts. Assessment of the
business climate will be done by professional consultants to advise how
suppliers should project their portfolios. The professional advice will be from
experienced professional firms who had an experience to similar development.
Getting the right skill that fills the gaps of the suppliers needs will ensure the
supplier is looked favourable. Some of the initiative is to get credible
professionals on-board the SMEs
Respondent 1: “Now we have to employ consultants, so that somebody
comes to tell you that if you are pitching for this business this is the way
you should be operating it. This is what you need to do, and obviously
you don’t possess those capabilities so you have to buy it out”.
Respondent 1: “We are also trying to see from a from a senior
management point of view, what are the skills sets you are needing,
preferably in production, managers, quality managers, and if you know
anybody, please we are looking! There are a couple of adverts we are
putting out in terms of the skills gaps we have”.
Subtheme 5: Get assistance from governmental programmes
The DTI is praised by the majority of the respondents as having dedicated
resources set aside to help the railway industry specifically the railway SMEs
who are striving to manufacture products locally. The suppliers have recently
interacted with the DTI and discovered that the government have funds that suit
their kind of operation.
Respondent 1: “We are looking for assistance from the DTI, they have a
program, enterprise competitiveness program, to say we need
assistance – to say ‘this is where we are, this is where we need to go’ –
and we actually did it already 2 years ago”.
Respondent 8: “to get back to new products then we also applied now
for investment from DTI which I must complement the government of the
day because I never knew really that there is a fund like that to help
small businesses like this.”
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 54
Respondent 7: “we obtain the contracts, we are executing the contracts,
the DTI came in and said they will assist with more capital because it is
expensive, and they will assist us by putting systems into the company to
make this company to where we believe it can be”
Subtheme 5: Joint ventures with OEMs
OMEs prefer the partnership approach with OEMs where they can have
balanced power over the other. The respondents indicated that they partner
with OEM in the form of joint ventures where contracts are viewed at equal level
and approached with a back to back agreement risk.
Respondent 4: “we now avoid working with OEMs, as sub-contractors,
because we have very little to control. But instead we prefer working with
OEMs on a joint venture basis.”
Respondent 1: “And that is really what we have – and a partner
approach – we are looking not really to just be a supplier but be a
partner.”
5.3.3 Themes from the third research question
The following themes and subthemes are related to the third research question
about how SMEs position themselves to become preferred suppliers in the
South African railway industry. The main themes in preferred suppliers
positioning is the suppliers agility, value for money offered, product
development, compliance, offering good customer service, personal relationship
and having resources.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 55
Table 10 : Positioning strategy to be a preferred supplier
Themes Sub-themes
Agility Short lead times
Design flexibility
Value for money Price stability
Discounted pricing
Fighting downstream price increase
Product development Collaborating with buyers to build prototypes
Offer superior and durable quality product
Continuous product innovation
Compliance
Black economic empowerment (BEE)
Complying to International standard
Offering good customer service Support during and after sales
Going an extra mile
Local support
Personal relationship
Customer visit
Access to decision makers
Trustful Relationship with the customer
Having the resources Keeping the railway expertise
Developing in house expertise
Building a good reputation
Theme 1: Agility
Agility refers to the quickness of the supplier to respond to the buyers needs
which is transferred to the buyer in responding to the market dynamics. Two
subthemes identified in the responses that are categorised as agility are short
lead times and design flexibility.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 56
Subtheme 1: Shot lead times
The respondents indicated that when OEM procure components in a locally
environment they will be preferring product to be delivered in time such that
customer assets in service can return to service at minimum down time.
Respondents indicated dependency on imported critical components could lead
to delays responding to locally emergencies.
Respondent 2: “you have a very close interaction with your OEM. If he
needs a product it can be done very quickly so lead times have come
down, and so it means your fleet of crates or locomotives or one
locomotive can get back into revenue earning quicker than getting from
abroad.
Subtheme 2: Customised Design flexibility
The respondents mentioned that their strength in positioning themselves as
preferred suppliers is their ability to do flexible designs customised to the
customer’s needs. This is an advantage as most of the large international
manufacturers in the railway industry produce large volumes for worldwide
markets are working on fixed designs proven designs.
Respondent 6: “…they had someone design for them 20 years ago and
they just build them. We can answer those technical questions, when a
unit does something funny we can get involved. When you want the
unique design to do something very special we can do it.”
Respondent 7: “So I think what OEMs see in us is a one stop flexible
competitive machine that they can use to their good will because we will
align ourselves to what they want and our strategy where it is, is to make
them successful with whatever project,”
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 57
Theme 2: Value for money
According to the respondents value for money offered to customers is what
makes suppliers to be preferred. Decision making are made ultimately on the
price of the service exchanged which usually will be wrapped in features
indicating value for money,
Subtheme 1: Minimum Costing
The respondents indicated that cost margins evolution is vital to price right.
Some of the cost should not be loaded in one activity but to be spread over a
period of activities. Spreading cost will ensure that the business does not over
price itself in a single activity.
Respondent 3: “you cannot overload that cost, if you do you are not
going to be in business and they are going to lose out on their service
and attainability. So they also have to be prepared to say ‘that’s the
bottom line and come to the party”
Subtheme 2: Discounted pricing
Suppliers in a competitive environment are faced with challenges where finding
a niche in the market will be the positioning strategy for preferred supplier
status. Large suppliers will capitalise in their production volumes in offering
discounted pricing.
Respondent 7: “I think pricing is an issue where if you compete with big
role players they tend to out price you, however if you get the niche in the
market you can be the market leader or the game changer”
Subtheme 3: Fighting downstream price increase
Keeping prices stable over a long period provides stability in the market and
builds customer’s confidence in the supplier. Suppliers who keep their customer
preference upstream by keeping their prices stable will pushback price
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 58
increases downstream fighting any price increasing affecting high cost of their
products.
Respondent 6: “it is every time a price increase comes through don’t
just accept it – fight it, even if you don’t get a price decrease you can just
curb the impact of a price increase, and then over time you do outstrip or
whatever inflation is doing. Now I believe that is how you are going to
stay competitive”.
Theme 3: Product development
When suppliers are able to develop products preferred by the customer they
have positioned their business in preferred status in the customer’s list of
suppliers. When products are developed with the customer’s needs in
consideration the customer is able to recognise such initiatives. Respondent 7
stated that “you need to have your development team and your designers in
place and qualified to become a preferred supplier, but the more products, I am
emphasizing products – the more you can put on the table to solve their needs
the more successful you will be.” Activities in product development that
suppliers do to earn the customers preference status are categorised as
subthemes. The subthemes are collaborating with buyers to build prototypes,
risk appetite, develop superior and durable products, and being to innovate
continuously.
Subtheme 1: Collaborating with buyers to build prototypes
Building prototypes in collaboration with the customer is considered as the most
effective in developing products that with fulfil and comply with customer’s
specifications. When the prototypes are taken to customers and the agreement
is reached pilot or test such product under their supervision it is a first step in
developing preferred products.
Respondent 2 : “So I am going to go and create the product, build
prototypes and what have you and then I am going to take that product
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 59
and go to the OEMs and say ‘you know what, I am building this piece of
equipment, would you like to buy this, can you support me in buying
this?’ So that is stage 1 yes, you are going through the process of
creating this equipment and you become a preferred supplier for the
whole year”.
Subtheme 3: Offer superior and durable product quality
When new suppliers enter the railway industry they must comply with the
railway industry standard where safety, durability and quality are considered a
culture. Rail products must withstand hostile environmental conditions. When
supplier’s product is more durable and reliable compared to their competitors
the preferred status will be granted to the supplier.
Respondent 2: “make sure the component you are building is of top
quality, it goes into the locomotive or train, it must withstand all working
conditions, last for the warranty period, and through that process you
then become an accredited supplier”.
Respondent 6: “And anyone is always willing to pay a little bit more if
the product is that good. So if a product is reliable it never gives you
problems and it doesn’t cause your loco to stand… So I think those are
the challenges we need to focus on to outstrip the competition”.
Subtheme 4: Continuous product innovation
When a preferred supplier status is achieved due to the superior product
relative to the competitor the achievement will not last longer until the
competitor caches up. The competitor will always search for opportunities and
take advantage of opportunities where their products will match or surpass the
competitor. The preferred supplier will therefore keep their preferred status by
relooking their products to continuously innovate and keep up with technological
development.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 60
Respondent 2: “is to look at your product from time to time, every six
months or year, and say ‘what I can do, what innovation can I do to my
product to make it a little more advance”.
Respondent 5: “You have got to look at it and see what is required, as
you go along the technology develops and you have either got to be
ahead or aligned with the development and you can follow the
development”.
Theme 4: Compliance
Two major compliances for suppliers are identified. BEE compliance has
become the norm in the industry for all firms to comply to. International
standards are expected at product and process level. Companies who have
achieved a higher compliance than their competitors in the South African
environment will be preferred as suppliers.
Subtheme 1: Black economic empowerment (BEE)
Compliance to BEE is compulsory for suppliers who seek to grow their business
as major players in the South African railway industry. When a company has
favourable BEE score than the competitor they become preferred. Suppliers will
therefore voluntarily go through compliance to edge over their competitors.
Compliance to BEE has become the source of competitive advantage.
Respondent 6: “In this country then firstly BEE is a must, it is becoming
more and more of a reality that if you don’t have it you are not going to
get anywhere”.
Respondent 3 : “We buy our diesel from BEE companies and most of
our equipment – if there is a decent BEE company available, we buy
from them. … something that counts your BEE scoring of all the
companies you support, and it is the suppliers of products that you
support.”
Subtheme 2: Complying to International standards
The railway industry requires strict compliance to safety standards due to the
risk nature of the railway operation if anything can go wrong. The railway
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 61
operator will not allow any product that does critical functions to be installed
without approval or certifications from international certification institutions.
Evidence of compliance to regulation and certification will position SMEs in
favourable position when evaluated.
Respondent 2: “We have taken initiative to make sure that we go the
extra mile in terms of what we picked up as the requirements. We had
our initiatives that for instance this IIRIS thing, we just decided to say
listen, we have to try and start a qualification process for this IIRIS….. So
that initiative I think put us in very good stead in terms of the positioning”.
Respondent 8: “There is confusion or misunderstanding around SIL
level 4 certification in the market. We were forced on our LED light unit to
go through a very costly exercise with TUV in Germany to get our LED
signal SIL level 4 approved “
Theme 5: Offering good customer service
Giving customer service is the strategy identified in all the respondents as way
of positioning their company closer to the customer to occupy the preferred
supplier status. The activities identified as subthemes are offering support
during sales and after sales, going an extra mile in addressing the customer’s
needs, and having a local support team familiar with the customer environment.
Subtheme 1: Offering support during sales and after sales
The respondents acknowledged the importance of providing full resources
during sale proposal phase where understanding the customer’s needs is at
supreme state. The following support provided is after the product has been
sold to the customer where onsite service is required. The supplier will be
required to work cooperatively with the customer to ensure adaption of the
product where arising issues are quickly identified and isolated. Respondents
mentioned that a job has to be properly done first time to avoid going back to re-
do.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 62
Respondent 2: “You need to work hand in hand with the OEM and as
much as he is going to support you by giving you orders, you also need
to support him, it is a two way street, to the point where if you have to
you go and physically fit the equipment on the locomotive, do the
necessary tests and continuous assessment of your product and if a
client picks up a problem after sales is also very important; to follow up
with your client ‘is my equipment good or any different from the other
suppliers”.
Respondent 3: “We are a preferred supplier with Transnet. And the
reason being is we have after sales service”.
Respondent 5: “you give them the service, the time, the actual
completion date and finish on time, the job is properly done, you don’t
have to go back and re-do it”.
Subtheme 2: Going an extra mile
The respondents mentioned going an extra mile to meet customer’s needs as a
way of fortifying dependability by the customer where a preferred supplier status
can be earned. The customer will have expectations that are misunderstood by
the supplier and during the interaction gaps can be identified and the supplier
will need work double harder to absorb extra work in meeting the customer
expectations.
Respondent 5: “We went out of our way to finish it off nice and we made
the station look pretty. And they did not expect that, that is why you
become preferred; you go the extra mile.”
Respondent 1: “we had to work double hard to absorb the expectations
and make sure we are able to pass as a preferred supplier.”
Subtheme 3: Local support
The respondents mentioned that the customer’s preference to localise as part of
the expected compliance to government regulation enforced in the railway
industry and as part of service agreement the customer will have.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 63
Respondent 6: “the local support we offer, the conditions in SA are
different from anywhere than anywhere else. So it is easy to say for an
international company ‘oh we will set up here”.
Theme 6: Personal relationship
Building healthy personal relationships with the customer was identified as a
key contributor in understanding the customer environment and also being
understood by the customer which has a long term benefit where a supplier can
be preferred just by networking with the customer. The activities categorised as
subthemes are customer visits, access to decision makers and trust.
Subtheme 1: Customer visit
Customer visits to where products are on service to enquire about performance
is appreciated by the customer. The customer will work with the supplier to
identify performance issues that needs to be addressed by the supplier.
Respondent 3: “We used to go and visit them, stay for a week, we used
to drive from Joburg on a Sunday, start in Richards Bay, no, Suldanha
Bay and do Salt River and all the way up and take another week and go
down the Natal side. And it is just to go and call on them and if they have
a problem you sort it out”.
Subtheme 2: Access to decision makers
The respondent’s access to the internal customer key figures gives advantage
to advanced planning and efficient resource mobilisation during the blackout
phase where the customer specifically the railway operators will not be
communicating with suppliers leaving suppliers to take uninformed decision.
Another initiative suppliers will make will be to leverage their networking of
relationship to make their concerns heard by key decision makers with the hope
that unfavourable requirements will be relaxed to accommodate the supplier.
Respondent 7: “you make friends with one or two, you try to get some
information but now they are also scared of telling you too much because
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 64
they are scared of losing their jobs, all you want is to have some direction
or some idea. I don’t want to call it underneath the table relationships but
you use your relationships within those companies to get some
information out of it”.
Respondent 4: “have access to relevant decision makers, for instance
the executives of these organizations, where we can raise our concerns”.
Subtheme 3: Trustful relationship with the customer
The respondents indicated that relationship with people is major in making a
deal successful with people. The respondents mentioned trust as major
indicator of a matured relationship with the customer. When a trust relationship
is developed the customer will prefer to walk with the supplier over other
suppliers without an established relationship.
Respondent 9: “their (customer) visit to see your process, it made it
easy for the relationship for them to help you, where you were battling
with process.”
Respondent 3: “a major thing but it is a personal thing, it is relationships
with people, with your customers, and you have to watch those things,
and when I say closely I don’t mean you are paying anybody, but you
know he can phone you and you will go and help him”.
Respondent 5: “For this specific company, yes, because it’s again about
trust, they have trusted me with the third job which I did for them”.
Theme 7: Having the resources expertise
The respondents mentioned that when a supplier has the expertise in-house big
OEMs will start to look at the supplier favourable due to the scarcity of signalling
engineers in the market. Most of the resources have been working for the state
railway operators. Suppliers will attract and keep expertise to themselves and
others will develop their own in house.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 65
Subtheme 1: Keeping the railway expertise
The respondents highlighted that acquiring expertise that can perform
specialised tasks give a competitive edge over competitors in the industry.
Having respected expects who are credited in the field improve the image of the
company to potential customers.
Respondent 7: “Currently in SA there is about 18 accredited signalling
engineers, people that can do testing of installations, only 18 in the whole
country...We went out and out of the 18 we appointed 8 into our
company, and suddenly the three big OEM’s … realized that they didn’t
have one, And it forced the big companies to start to look at us to say
‘here is now an installer of technology’.”
Respondent 4: “so we do have the railway expertise, we have unique
competencies which some of these companies don’t have. We have
specialist railway expertise and that is where the synergy comes from”.
Subtheme 2: Developing in house expertise
The respondents mentioned transfer of skills to teams they lead as a strategy of
building competitive advantage. Developing in-house expertise is a regarded as
the best way of building strong teams that can execute customer requirements.
In house expertise are familiar with the company products can therefore offer
service support to customers.
Respondent 5: “as for having a proper team, the team has to be
properly trained and those who cannot train you will bring them up to
speed, you give them facility, you send them to college or you send them
to some sort of school or courses to let them come to the speed of what
is needed as you go along”.
Respondent 6: “I think technically we are a lot more competent than any
of your other suppliers. We can answer those technical questions, when
a unit does something funny we can get involved. When you want the
unique design to do something very special we can do it”.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 66
Subtheme 8: Building a good reputation
Reputation is highly regarded in the railway industry where everybody knows
each other’s capabilities and weaknesses. Suppliers who have many years of
experience had built their reputation through previous projects and are now
recognised. The reputable companies are now competing with emerging firms
which are not recognised as established suppliers.
Respondent 3: “..we have been keeping the rails going now until this
new contract, and so we built up a reputation with them and I mean as
you very well know… they had been looking at us quite a while and had
asked a lot of people questions and got the right answers and that is why
they said ‘we want to come in with you.”
Respondent 5: “..give credit to some people, for 20 years I have been
doing this work.”
Respondent 7: We were in corporate, I was 25 years in Transnet
environment, executive management, PFMA, King 3 and a lot of those
things.. it gives them comfort to say that these people have been in
corporate, they know all the financial rules and regulations, they know
the issues and now they are running their own company;”
5.4 Chapter summary
This chapter presented the responses from the structured interviews conducted
and the analysis of the results outcome. The responses from the three research
questions were presented. Themes and subthemes from the main research
questions were identified and presented. In the subthemes presented the
respondents direct quotations were presented to reflect the exact respondent
responses.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 67
CHAPTER 6
RESULTS DISCUSSION
6.1 Introduction
This chapter discusses the results within the context of the literature reviewed.
The first section will revisit the main research objective. The results will be
discussed in three sections with reference to the main research questions.
Summary of the chapter will be presented.
6.2 The context of the finding
The main aim of the research was to investigate the barriers in supplier
development encountered by SMEs as suppliers within the context of the South
African railway industry. Three objectives of the research were developed to
focus the research.
The first research objective was to identify barriers faced by SMEs (small
and medium enterprises) to be suppliers of large OEMs in the South
African railway industry. The research question was what are the barriers
associated with the South African railway industry encountered by SMEs
in becoming suppliers in the industry?
The second research objective was to establish the challenges that lead
to failure of the supplier development process. The research question
was what are challenges encountered during the Supplier Development
process?
The third research objective was describe the activities done by SMEs to
positions themselves in becoming preferred supplier development
candidates for OEMs in the South African railway industry. The research
question is how do SMEs position themselves to become preferred
suppliers in the South African railway industry?
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 68
6.3 Barriers encountered by SMEs as suppliers
The findings from the interview conducted about barriers encountered by
suppliers in the railway industry were summarised into themes. The themes
indicate the barriers faced by the suppliers in the railway industry as follows:
Industry specific human capital,
industry regulation,
industry specific capabilities,
building buyer-supplier relationships,
government interventions, and
resources.
The findings are similar to Karakaya (2002) findings who identified the top five
out of 25 barriers to enter into industrial markets, the highest barriers to entry
were absolute cost advantages, capital requirements to enter market,
proprietary production technology and customer loyalty. Luk’ianov and Kisliak
(2007) findings were that behavioural barriers are the most effective instruments
of impending entry of new firms. The behavioural barriers which are non-
strategic barriers being state licensing and state policy control over strategic
resources, cultural differences, and density of product space. While behavioural
barriers which are strategic entry-limiting price formation, advertising, outlays
on R&D, incompleteness of information, investment risks and costs of operation
on foreign markets.
Industry specific capital human capital
The findings were that skills specific to the railway industry are unique and it is
therefore a challenge to find and they require sustained projects to develop.
Some of the firms interviewed have recognised that securing the expertise in
the railway industry has become a source of their competitive advantage. The
shortage of skill and the need to develop new talent has been recognised by
Transnet hence the emphasis on supplier development to ensure security of
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 69
supply, reduce reliance on imported products and enhance local IP and skill
base (Transnet, 2010).
Industry regulation
The findings were that railway industry is heavily regulated and is made worse
by the bureaucratic processes imposed by the state owned railway operator in
the supply chain. Industry regulations are entrenched in the railway sector due
to safety culture and level of risk if something goes wrong. Suppliers will need to
be in an approved list which is granted by following a structured process
opened at particular period at the operator discretion. During the approval
process new products will be evaluated and will get an approval for installation.
Equipment will also require a certification from international institution to be
certified for level of safety. Suppliers will need to meet a specified requirement
which could include prior experience and having local engineers that are
registered with the engineering council of South Africa or having the company
registered for CIDB (Construction Industry Development Board) level. Olievschi
(2013) findings suggest that governments must develop long-term strategies to
improve regulatory framework for railway concessions, provide necessary
investment in railway infrastructure, and prioritise actions for improving railway
performance and acting to create a friendlier business environment.
Industry specific capabilities
The findings are that successful players in the industry will have railway specific
capabilities developed over a long period in the industry. Competitive suppliers
will require continuous innovation to outcompete rivals who have their products
already approved by the operator. Moreover having intellectual property in the
form of products approved by the operator will secure orders which the operator
can push down on other suppliers to use. Due to the nature of projects in the
railway they can take a long time to complete and suppliers will need
experience to effectively cost project activities during the bid phase.
Respondents who are in manufacturing emphasised a challenge of being
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 70
competitive when volumes are lower. Luk’ianov and Kisliak (2007) classified
these barriers in his findings as strcutural-technological and strategic which
includes patents, product differentiation and vertical intergration.
Building buyer-supplier relationship
The findings indicate that building relationships is very important in the railway
industry and industry players who are slow networkers or new players will face
difficulties in managing the buyer-supplier relationship. Some respondents
credited their success to having close relationship with the customer. Such
relationships have been built by after sale support, visits and reputation built
over years of operating in the industry. Samuel (2014) indicated that clear
additional benefits that are intangible benefits come with long-term
relationships. The benefits include inter-personal trust, friendly relation, mutual
support, team working and rapport (Samuel, 2014). The findings in this study
classified relationship as indicated by the:
Trust
Exclusivity agreements
Flow of information
Literature reviewed explored the benefits of trust in a relationship. (Li et al.,
2007) state that trust will ensure the operation effectiveness of a buyer. Nagati
and Rebolledo (2013) stated that trust builds strong incentives for sustainable
commitment in exchanges between partners and the effect of trust is that it will
guarantee loyalty which is essential for a continuity of a long term relationship.
Government interventions
The findings indicated that government interventions play a major role to in the
railway industry. These are due to the fact that major operators are state
owned. Government policies will therefore direct the type of projects the state
enterprises will undertake. Cottrell (2010) narrate the role of government in
developing the railway industry in South Africa since 1910 and the new
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 71
momentum of the 21st century where government is focusing investment in the
railway. The National Treasury Republic of South Africa 2012 budget review
highlighted that Transnet is committed to invest about R300 billion over the next
seven years towards railway development, of which R107.7 billion is included in
approved plans over the Medium Term Expenditure Framework (MTEF) period
(Department of Trade and Industry, 2010). Two major challenges accredited to
the government interventions are the BEE policies and the labour dynamics in
South Africa. Suppliers in the railway industry who are participating in
government lead industrialisation programs are required to fulfil a certain labour
content. Another labour issue is the labour strikes can affect some
manufactures that fall under certain bargaining union councils. Luk’ianov and
Kisliak (2007) classified barriers due to government inteventions as behavioral
and non-startetigic.
Resources
The respondents indicated that new SMEs in the railway industry will require
resources in the form of capital to fund operational cost, financial support to set
up facilities and procure specialised equipment. Three of the respondents
indicated that they are in a process with the DTI to receive funding for product
development. According Transnet CSDP initiative it is recognised that suppliers
will need to build capacity and potential competitive advantage (Transnet,
2010). Bigger companies with resources are required to help smaller suppliers
with fewer resources. Supplier development requires both firms to commit
financial, capital, and personnel resources to the work; to share timely and
sensitive information; and to create an effective means of measuring
performance (Handfield & Krause, 2000).
6.4 Challenges in the supplier development process
Supplier development is still not well entrenched in the South African railway
industry and the supplier development process is not yet formalised. Some of
the SMEs were not able to confirm if they were indeed participating in a supplier
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 72
development programme or not participating. The activities between the SMEs
and the buyer confirmed that they were in a supplier development relationship
were the buyer is transferring technological know-how and sharing resources
with the supplier. The current review of literature shows that there are many
supplier development process models, however there is no unified model which
is agreed upon and most of them are focused on the buyer’s perspective
(Krause, 2000; Lascelles & Dale, 1990). Terpend et al. (2008) stated that the
Supplier development process is simply defined as a long-term cooperative
effort by a company to upgrade its supplier’s technical capabilities, quality
delivery, and costs in view of continuous improvement.
The supplier development activities
This study viewed supplier development activities from the supplier’s
perspective. From the supplier’s perspective, they commence the process with
a continuous search for opportunities in the market which are in line with their
expertise. Potential players or customers who have the capacity to execute or
manage the potential opportunities are approached. Meetings with potential
customer to discuss supplier opportunities will take place. Requirements are
then discussed and a conditional agreement will be reached. The supplier will
mobilise resources in the form of equipment, human capital, facilities and
capital. Further discussions will take place where details of the product
specification or service will be finalised. A contract will be signed for production
of the product. Production will start and interaction will continue between the
two companies. The supplier will be required to innovate continuously the
product to reduce cost, improve quality and efficiency for on time delivery. The
table 11 below summarises the findings about activities in supplier development
and also compares them with previous research which focused on the buyer’s
perspective
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 73
Table 11: Supplier development process results comparison
Steps
Current study
Steps Description by (Krause, 2000)
Description (Lascelles & Dale, 1990)
Supplier’s perspective
Buyer’s perspective Buyer’s perspective
Step 1 Search for opportunities
Identify Critical Commodities.
Establish and articulate programme objectives
Step 2 Approach the potential players
Identify Critical Suppliers Set priorities for action
Step 3 Enquire what the buyer wants
Form a Cross-Functional Team
Identify key suppliers as potential long-term partners and make plans to reduce the supplier base
Step 4 Prepare resources
Meet with Supplier Top Management
Communicate the programme objectives and methodology to key suppliers
Step 5 Meet with the buyer
Identify Key Projects Assess the capability of suppliers to meet purchase requirements
Step 6 Agree on the product specifications
Define Details of Agreement
Engage in advanced quality planning with suppliers
Step 7 Make a contract Monitor Status and Strategies
Formally recognise suppliers which achieve "preferred" status
Step 8 Produce and deliver the product
Develop an on-going quality improvement relationship with suppliers based on a free exchange of information.
Step 9 Continuous Innovation
Challenges in the supplier development process
Handfield and Krause (2000) identified major failures during the process of
supplier development process as happening when defining key projects, when
defining agreement terms and when monitoring project status and subsequently
modifying strategies. The finding of the study is similar to Handfield and Krause
(2000) in the challenges that occur due to lack of common ground in
understanding between both parties. Suppliers complained that OEMs will take
longer to make decisions and secondly to do the on-boarding. These are
attributed to the long processes to OEMs bureaucracy. The challenges due to
miscommunication and feedback provision were also identified which were
attributed to lack of direct communication specifically with the state railway
operators. The lack of transparency in certain programmes was identified as
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 74
one of the challenges which are affecting supplier’s certainty. More findings
identified that are challenging are lack of clarity during product specification and
finding matching facilities to the production.
Challenges Identified during the supplier development process are the
following.
o Long supplier development process,
o Miscommunication and feedback,
o Lack of transparency,
o Product specification information, and
o Appropriate facilities.
Mitigating challenges in the supplier development process
Suppliers who are successful will adapt to circumstances around them to find
ways of mitigating the difficulties they face. Lascelles and Dale (1990)
mentioned that supplier development needs to be supported by well trained
personnel helping suppliers to achieve the objectives that are laid down.
Moreover it will be necessary to have effective communication and feedback
through selected representatives through whom all communications are
directed. The finding in the study was that SMEs as suppliers in the South
African railway sector will prefer to mitigate buyer-supplier relationship
challenges by:
Openness (about the companies capabilities and significant information
required by the buyer),
Get advice from consultants,
Recruiting and outsourcing the lacking skills,
Get assistance from governmental programmes,
Joint ventures with OEM,
Openness at the early stage of the buyer-supplier relationship is very important
to set the tone of trust. During the supplier development companies will be
engaged in a relationship that require that trust is build which cannot be
established without openness. Openness is regarded as a key factor that matter
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 75
in buyer-supplier relationship (Samuel, 2014) and the price of entry is the
supplier’s willingness to open up operations for inspection (Rajput, Hamid, &
Bakar, 2012).
Consultancy type of service can be offered by the customer to the specific
supplier if the suppler face difficult problems to solve. The buyer-supplier
relationship will consist of joint problem solving where the buyer who is the
customer to the supplier will be providing a consultancy type service to
suppliers (Lascelles & Dale, 1990).
Suppliers must have the required skill which they can recruit or outsource for a
particular service where a specialist is required. (Nagati & Rebolledo, 2013)
also found that supplier-specific barriers are deficiency of technical skill and
dearth of human resource.
Suppliers are getting assistance from Government agencies where some of
the agencies like the DTI have assistance programmes specific to the railway
sector. Three of the respondents had positive feedback from the DTI to assist
them with product development for export. The IDC is also mentioned as
provided assistance with ISO 9000 quality certification to one of the
respondents.
Joint ventures with OEMs is done is preferred by suppliers due the level of
engagement and level of power relationship. SMEs that are still new to the
industry or have not done major projects find protection from some of the
expertise or compliances are falling short at. Joint venture relationship will be
recognised as one entity where the OEMs will bring recognition and
technologies while the SME will bring to the table local compliance and labour.
Sometimes it may be more advisable to team-up with a slightly less competent
supplier, provided he honours the buyer with the privileges of preferential
customer treatment (Schiele, Veldman, & Hüttinger, 2010).
6.5 SME’s strategy as suppliers to align with customers
Handfield and Krause(2000) stated that ssuppliers that supply critical strategic
supplies commodities are warranted for supplier development due to the high
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 76
risk and high volume purchases. A well-positioned supplier is the one a buyer
will be depended on for a strategic supply (Hanemann, 2014). The main
strategic supply in South Africa is the expertise and having compliant products
that are approved by the railway operator. The finding list below is what makes
SMEs to be well positioned to be preferred suppliers in the South African
Railway industry.
Agility,
Value for money,
Product development,
Compliance to requirements,
Offering good customer service,
Personal relationship,
Having the resources, and
Building a good reputation.
Agility is effective when local suppliers are able to service customer’s needs
within a short period using local expertise. Suppliers see themselves as better
positioned to be preferred suppliers when they are able to respond to customers
quick enough in the area of strategic importance than when compared with the
competitors. Placed orders will take short lead times to be delivered and design
will be customised for the customer. The supplier will reinforce its presence by
customer visits and ensuring visibility in the customers view. Nagati and
Rebolledo (2013) stated that suppliers must take actions to better position
themselves as supplier development candidates by making specific investment
in time and resources towards the needs of the customer.
Value for money is seen as continuous improvement of the offered product
with more features that have incremental benefits while keeping downstream
cost lower. Respondents indicated that some companies required a three
percent year on year price decrease which can be only be achieved through
product development and through lean manufacturing. Some respondents
recommended that OEMs can have more value if they can share their long term
plan with the suppliers these will in turn ensure an efficient planning that can
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 77
save downstream cost for suppliers and pass savings upstream. Li et al (2007)
also found that the value sought by buyers is operational performance which is
based on the features stated.
Product development gives suppliers a competitive advantage if their products
succeed on being approved by the railway operator and is successful listed as
an approved product. Competitors in the market who are developing similar
product will have to wait for the gap opening when the operator is engaging the
industry. Some have gone through the process of product approval which took
up to three years before an approval is granted. The strategies used by supplier
are to build prototypes at their own cost for testing, offering of quality and
durability products within the existing products and to offer new solutions
through innovation to reduce costs. In summary product development is an area
where collaboration for long-term goals can be forged. Friedl and Wagner
(2012) stated that product development is not an initiative for immidaite results
but long-term goals.
Compliance to the mandatory requirements by the customer strategically
positions the company by default in favourable position. Some of the standards
can be uniquely local and some are international standard. Compliance to local
requirements like B-BBEE can disadvantage OEMs who are setting-up in South
Africa as it takes a long period to implement. Two of the respondents stated that
they are taking initiative to comply with ISO 9001 by getting certification.
Another respondent indicated that they are taking initiatives to join IRIS
membership which adds credibility to identify their position in the railway sector.
Handfield et al (2000) stated that compliance to standards and specification is
not a long term strategic. Suppliers are in the long run able to comply with the
requirements matching incumbents however those who have approved and
compliant products are difficult to match. One respondent emphasised having
compliant products as a preferred strategic positioning.
Offering good customer service by SMEs is a strategic positioning by SMEs
where reputation is built by offering superior customer service. The services will
be offered during sales proposal and after sale. The findings from the
respondents indicated that activities that relates to giving services to the
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 78
customer will involve going an extra mile in an effort to address customer
needs, and having local team support after projects or products have been
commissioned. Literature reviewed showed that there’s a positive relationship
between buyer-supplier relationship with the company financial performance
(Mondini et al., 2014).
Personal relationship with the customer is acknowledged as a strategic asset
to source market intelligence. The personal relationship is built through
customer visits where human interface will take place. Findings from the
respondents also indicate that relationship with key decision makers on the
customer side is desired by suppliers to informally get key information
necessary to develop internal strategies. Suppliers also indicate that building a
trustful buyer-supplier relationship indicate recognition by the customer in which
future opportunities can be cultivated. Wagner and Krause (2009) suggested
that the degree of human interaction moderates the willingness of the buyer to
transfer knowledge to improve capabilities of the supplier. At least one
respondent became specific that OEMs have not been willing to transfer
technological skill set to locals but only the ‘screw driver technology’.
Having the resource expertise internally was regarded by the respondents as
something that brings credibility specifically when the supplier team consist of
scarce human resource expertise. The company will look interesting to potential
OEMs who will like to do business with the supplier and the railway operator will
prefer to contract the supplier. The supplier will keep the expertise internally for
consulting purposes and some other resources will develop internally
maximising skill transfer within the firm.
One respondent mentioned that when a supplier has the expertise in-house big
OEMs will start to look at the supplier favourable due to the scarcity of signalling
engineers in the market. Most of the resources have been working for the state
railway operator. Suppliers will attract and keep expertise to themselves and
others will develop their own in house. Luk’ianov and Kisliak (2007) mentioned
that control over startegic resources is a form behavioral-non strategic barrier. It
is contrary to the suppliers believe that it is a startegic positioning that prevents
others the credibility they may have over expertise.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 79
Good reputation is treasured by suppliers as something that a succesful
company will need to protect. To remain a preferred supplier companies
recognise the need to develop a good reputation with the customer. Suppliers
who have many years of experience had built their reputation hence
respondents mentioned their previous successes in executing succesful
projects in rail. Companies with many years of experience in the railway
industry are recognised as more reputable than companies with few years of
experience in the railway industry.
6.6 Proposed successful supplier development model
The concept model depicted in figure 3 shows the regulating variables that lead
to successful supplier development. Supplier development is regarded as a
critical factor for the buying firm’s competitive advantage to be achieved,
maintained and improved (Rajput et al., 2012). The antecedents to supplier
development are the supplier being in the industry space, having to overcome
the barriers to entry and secondly having the potential to become a preferred
supplier. Trust and preferred customer status are key antecedents of supplier
participation (Nagati & Rebolledo, 2013).
Overcoming barriers in the industry and successfully becoming a preferred
supplier are antecedents to participate in a process leading to supplier
development. Ahmed and Hendry (2012) presented the barriers in supplier
development that need to be avoided for successful supplier development. The
barriers were lack of supplier commitment, insufficient supplier resources, lack
of trust, poor alignment of organisational cultures and insufficient inducements
to the supplier (Ahmed & Hendry, 2012). In this study the findings were that
industry specific human capital, industry regulations, and resources and the
most prevalent barriers to supplier development. Barriers will have a negative
relationship in the process to successful supplier development. The successful
supplier development will be indicated by presence of trust and alignment of
organisation cultures.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 80
Figure 3 depicts the supplier development model to a successful supplier
development. During the supplier development the selected suppliers will face
challenges in the process that can derail the programme. According to the
respondents in the research conducted, suppliers will be selected after they
have overcome the supplier relationship issues related to preferred supplier
preference status. New suppliers will also be selected after they have overcome
barriers to enter the railway industry.
Figure 3: Proposed successful supplier development model
The respondents indicated mitigation factors to address preferred supplier
status by being prepared to respond to customer needs. Customer needs will
require that the supplier are agile, offering good customer service and having
the resources aligned to the industry needs. The respondents indicated that
barriers to entry are mitigated by ensuring compliance through factors like BEE,
doing product development where products get approved, and ultimately
building trust through reputation that sometimes will come through recruiting
respected expertise. During the supplier development process suppliers need to
have the financial back up to survive the bureaucratic process, lack of
transparent communication and face difficulties in during product specification.
Overcome
barriers to entry
Address
challenges
during supplier
development
Preferred
supplier status
Successful
supplier
development
Address barriers
to entry
Address
challenges to be
a preferred
supplier status
Supplier
development
selection
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 81
6.7 Chapter summary
The findings indicate that there are barriers faced by suppliers in the railway
industry which prevents SMEs from entering the industry as suppliers. Suppliers
who survive in the industry will seek help or derive possible solution to mitigate
the challenges faced by supplier development. Suppliers will engage in certain
activities before they become candidates for supplier development process. The
activities in supplier development will begin with the supplier looking for
opportunities to engaging with the customer to producing that product. Suppliers
will also follow particular proven steps of earning the preferred supplier status.
According to Nagati and Rebolledo ( 2013) suppliers will not do investments
required for supplier development initiatives unless the customer has a special
status compared to other competitive buyers in its customer portfolio.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 82
CHAPTER 7
CONCLUSION
7.1 Introduction
The purpose of this chapter is to draw final conclusions about the research
findings and outline the recommendations. Contribution of the study to the body
of knowledge will be discussed and future research study in the subject matter
will be recommended.
7.2 Conclusion The study sought to discover the insights on supplier development, particularly
on the notion of SMEs as suppliers in the South African railway industry,
barriers they encounter to be suppliers, the actions they take to become the
supplier development candidates with the buyers, and challenges they face in
the supplier development process. The study indicated that there are barriers
faced by suppliers in the South African railway industry. There are six major
barriers faced by suppliers in the South Africa railway industry. In the study the
findings were that industry specific human capital, industry regulations, and
resources are the most prevalent barriers to supplier development.
Before suppliers participate in the supplier development process they will be
engaged in the process of courtship with customers where single steps will be
taken to grow the relationship to supplier development. The supplier will first
focus on earning the preferred supplier status with the railway operators and
then begin with activities which start by searching opportunities with the OEMs.
The supplier development process will be characterised by activities that will
step-by-step follow as start by enquiries, resources mobilisation, and meetings
covering legal discussions, commercial and technical. Identified challenges
during the process activities are the process of courtship taking longer to make
contract agreement which tend to drain resources from a small supplier.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 83
Committing designated resources is critical to eliminate miscommunication,
clarify specifications, and managers providing transparent information.
Barriers in supplier development are experienced at different stages of the
supplier involvement in the industry. Barriers are experienced in the industry
entry stage, during supplier development and in becoming a preferred supplier.
To achieve a successful supplier development programme both parties, the
supplier and the buyer must be willing to invest in the relationship to cultivate a
climate of trust to improve the level communication on the information shared,
and more over to eliminate bureaucracy to achieve efficiency in making win-win
decisions. Suppliers must focus on satisfying the needs of the customer by
making specific investment in acquiring required facilities and resources.
7.3 Contribution of the study
The study contributed in three areas: theory, practice and methodology. The
predominant amount of research in supplier development has been done from
the buying firm perspective (Ahmed & Hendry, 2012). The study focused on
supplier development from the supplying firm perspective. Given the few studies
focused in the supplier perspective the findings in this study will therefore be
predominately new knowledge. Moreover very few articles exist about the
railway industry practices in South Africa. This study will provide new
knowledge about the railway industry practices from the supplier’s perspective.
7.3.1 Contribution to theory
Barriers are context based, therefore study contribute to the body of
knowledge in the South African perspective about barriers faced by suppliers in the railway sector.
New barriers in supplier development were identified which are from the
supplier perspective.
The study identified supplier development process and activities in the perspective of the supplier.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 84
The study is significant to the railway industry given the focused
investment in the sector by the South African Government and in
requiring supplier development plan as a prerequisite in winning
contracts.
7.3.2 Contribution to practice
OEMs who are in the railway sector will gain an understanding of barriers
faced by suppliers. The findings will guide OEMs engaged in supplier development to key barriers where effort can be invested in making supplier development a success.
OEMs will gain an understanding in operation and expectation of the South African suppliers in the railway sector.
Suppliers who are engaged in supplier development will be advised by the study to avoid the barriers identified and to use the mitigation factors identified.
Suppliers will use the identified supplier development activities to optimise engagement with perspective customers making the process efficient by avoiding long costly delays
Government will use the finding in the study to guide policy making in removing barriers due to government policies that are in contrary to supplier development.
Government is interest in supplier development as a way of industrialising the South African economy; therefore this study will be advice government in the progress made in supplier development initiatives implemented through the state owned railway operator.
The railway operator has been enforcing supplier development through the OEMs who normally get the state capital projects in contracts, the study will advise the railway operator of the challenges faced by suppliers from the supplier’s perspective.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 85
The railway operator will gain some knowledge in the communication and process challenges faced by suppliers when dealing with the operator’s
supply chain.
7.3.3 Contribution to methodology
Most studies conducted in supplier development have been employing a
quantitative perspective; in this study a qualitative approach was used.
7.4 Recommendation for future research
Quantitative testing of the barriers that were derived in this current study and the proposed model.
Future research should focus on studying suppliers and buyers at the same time.
Future study should research barriers to supplier development in the railway industry from the buyer’s perspective.
Study of railway operator communication practices to suppliers in fostering supplier development.
Future study on railway operator supply chain policies in promoting supplier access.
Government policies aimed at supplier development should be studied to determine their effectiveness to drive supplier development through state enterprises.
A study is required to focus on addressing the barriers to entry in the market as a new supplier.
A study is recommended to focus on addressing the challenges during the supplier development process from the supplier’s perspective and buyer’s
perspective.
A study is required to focus on addressing the challenges pertaining to preferred supplier status as a prerequisite to supplier development.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 86
LIST OF REFERENCES
Ahmed, M., & Hendry, L. (2012). Supplier development literature review and
key future research areas. International Journal of Engineering and
Technology Innovation, 2(4), 293-303.
Aydin, G., & Dzhaleva-Chonkova, A. (2013). Discussions on rail in urban areas
and rail history. Research in Transportation Economics, 41(1), 84-88.
Beck, A. (2011). Barriers to entry in rail passenger services: Empirical evidence
for tendering procedures in germany. European Journal of Transport and
Infrastructure Research, 11(1).
Chokoe, M., & Pita, G. (2013). Supplier development and economic growth and
transformation. SAPICS 35th Annual Conference and Exhibition, 2 to 4
June 2013. Sun City: South Africa.
Department of Public Enterprises. (2010). Department of public enterprises
strategic plan 2011 - 2014. (). South Africa, Pretoria: Department of Public
Enterprises.
Department of Trade and Industry. (2010). Medium-term strategic framework
2010 -2013. ( No. ISBN: 978-0-9814415-6-6). Pretoria: the DTI.
Department of Trade and Industry. (2011). Medium term strategic frame work
2010 – 2014. (). South Africa: Department of Trade and Industry.
Dyer, J., & Nobeoka, K. (2002). Creating and managing a high performance
knowledge-sharing network: The toyota case.
Friedl, G., & Wagner, S. M. (2012). Supplier development or supplier switching?
International Journal of Production Research, 50(11), 3066-3079.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 87
Fumo, N. D. G., & Jabbour, C. J. C. (2011). Barriers faced by MSEs: Evidence
from mozambique. Industrial Management & Data Systems, 111(6), 849-
868.
Handfield, R. B., Krause, D. R., Scannell, T. V., & Monczka, R. M. (2000). Avoid
the pitfalls in supplier development. Supply Chains and Total Product
Systems: A Reader, 58.
Hanemann, E. (2014). Antecedents & benefits of a preferred customer status in
a buyer-supplier relationship: A dyadic case study at a company from the oil
& gas industry and three of its suppliers.
John W. Creswell. (2012). Qualitative inquiry and research design: Choosing
among five approaches Sage publications.
Kalota, R. C. (2011). Supplier development in the mining industry: A case of
konkola copper mines plc.
Karakaya, F. (2002). Barriers to entry in industrial markets. Journal of Business
& Industrial Marketing, 17(5), 379-388.
Kelley, D. J., Singer, S., & Herrington, M. (2012). The global entrepreneurship
monitor. 2011 Global Report, GEM 2011, 7.
Krause, D. R. (1997). Supplier development: Current practices and outcomes.
Journal of Supply Chain Management, 33(2), 12-19.
Lascelles, D. M., & Dale, B. G. (1990). Examining the barriers to supplier
development. International Journal of Quality & Reliability Management,
7(2).
Leedy, P. D., & Ormrod, J. E. (2005). Practical research. Planning and Design,
8.
Lewis, P., Thornhill, A., & Saunders, M. (2007). Research methods for business
students Pearson Education UK.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 88
Li, W., Humphreys, P. K., Yeung, A. C., & Edwin Cheng, T. (2007). The impact
of specific supplier development efforts on buyer competitive advantage: An
empirical model. International Journal of Production Economics, 106(1),
230-247.
Luk'ianov, S., & Kisliak, N. (2007). Sectoral barriers to entry: Important
anticompetitive instruments. Problems of Economic Transition, 50(8), 46-
59.
Mahembe, E. (2011). Literature review on small and medium enterprises’
access to credit and support in south africa. Underhill Corporate Solutions
(UCS), Pretoria.
Michael, C. (2010). The first public railway in south africa: The point to durban
railway of 1860.Natalia 40, 20-31.
Mondini, L. C., Machado, Denise Del Prá Netto, & Scarpin, M. R. S. (2014).
Dyad buyer-supplier and its relation to financial performance. Journal of
Operations and Supply Chain Management, 7(1), 30-46.
Morgan, R. M., & Hunt, S. D. (1994). The commitment-trust theory of
relationship marketing. The Journal of Marketing, , 20-38.
Nagati, H., & Rebolledo, C. (2013). Supplier development efforts: The suppliers'
point of view. Industrial Marketing Management, 42(2), 180-188.
National Treasury Republic of South Africa. (2012). 2012 budget review. ( No.
ISBN: 978-0-621-40579-8). Pretoria: National Treasury Republic of South
Africa.
Ngugi, I. K., Johnsen, R. E., & Erdélyi, P. (2010). Relational capabilities for
value co-creation and innovation in SMEs. Journal of Small Business and
Enterprise Development, 17(2), 260-278.
Olievschi, V. N. (2013). Rail transport: Framework for improving railway sector
performance in Sub-Saharan Africa.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 89
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard
Business Review, 86(1), 25-40.
Pressey, A. D., Winklhofer, H. M., & Tzokas, N. X. (2009). Purchasing practices
in small-to medium-sized enterprises: An examination of strategic
purchasing adoption, supplier evaluation and supplier capabilities. Journal
of Purchasing and Supply Management, 15(4), 214-226.
Rajput, A., & Bakarb, A. H. A. (2012). Elements, benefits, & issues of supplier
development contextualizing multiple industries. Journal of Basic and
Applied Scientific Research, 2, 11186-11195.
Republic of South Africa. The Presidency. (2003).National small business
amendment act 26 of 2003.
Röckle, F. (2013). Harnessing innovations pushed from suppliers: An
exploratory study in the railway supply chain: Public version.
Roden, S., & Lawson, B. (2014). Developing social capital in buyer–supplier
relationships: The contingent effect of relationship-specific adaptations.
International Journal of Production Economics, 151, 89-99.
Saunders, M., & Lewis, P. (2012). Doing research in business and
management: An essential guide to planning your project Financial Times
Prentice Hall.
Schiele, H., Veldman, J., & Hüttinger, L. (2010). Customer attractiveness,
supplier satisfaction and preferred customer status: Review, concept and
research agenda. International IPSERA Workshop on Customer
Attractiveness, Supplier Satisfaction and Customer Value, , 25 26.
Terpend, R., Tyler, B. B., Krause, D. R., & Handfield, R. B. (2008). Buyer–
supplier relationships: Derived value over two decades. Journal of Supply
Chain Management, 44(2), 28-55.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 90
Thomas, D. R. (2006). A general inductive approach for analyzing qualitative
evaluation data. American Journal of Evaluation, 27(2), 237-246.
Transnet, (2010). CSDP supplier guidelines.. (p. 1- 17). South Africa.
Transnet, (2010). Supplier development plan - brochure. (). South Africa:
Transnet.
Van der Walt, F. (2011). Japan-south africa : Suppliers development forum
transnet : Supplier development. South Africa - Japan: Suppliers
Development Forum - Creating Capacity for Localization, , 14 September
2011 (Pp. 1-22).,Johannesburg: Gordon Institute of Business Science.
Wagner, S. M., & Krause, D. R. (2009). Supplier development: Communication
approaches, activities and goals. International Journal of Production
Research, 47(12), 3161-3177.
Worthington, I., Ram, M., Boyal, H., & Shah, M. (2008). Researching the drivers
of socially responsible purchasing: A cross-national study of supplier
diversity initiatives. Journal of Business Ethics, 79(3), 319-331.
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 91
APPENDIX A: DISCUSSION GUIDE
SECTION A: BARRIERS TO ENTRY
1. What are the barriers associated with the South African railway industry encountered by SMEs in becoming suppliers in the market?
a) Is it easy to become a supplier in the railway industry? o If yes, what make it easy? o If no, what makes it difficult?
b) What are the challenges you are facing in becoming a supplier in the rail industry?
c) Are you currently in a partnership with a buyer for any of your products? o Yes, was it an easy process? o If no, why it is like that?
d) What action do you take to mitigate the challenges that you encounter in the industry as a supplier?
SECTION B: CHALLENGES DURING SUPPLIER DEVELOPMENT
PROCESS
2. What are challenges encountered during the Supplier Development process?
a) Are you currently participating in a Supplier Development programme? o If yes, how did you get involved and what was the process o If no, why?
b) Are you currently working or have you worked with a buyer?
o If yes, what are the activities and what are the most challenging
activities in this process and why?
o If no, why?
c) What action do you take to mitigate the challenges that you encounter in the supplier development process?
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 92
SECTION C: MARKET POSITIONING AS PREFERRED SUPPLIERS
3. How do SMEs position themselves to become preferred suppliers in the
South African railway industry?
a) Are you currently a preferred supplier with one of the Rail OEMs?
o if yes, what steps did your company took to become a preferred
supplier?
o If not, why?
b) What value does the buyer receive by keeping your company as a
preferred supplier?
c) What are the actions your company will need to take to ensure the
preferred supplier status is kept and also improved?
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.
PE Sithole 27591639
Barriers in supplier development encountered by SMEs as suppliers
in the South African railway industry 93
APPENDIX B: INFORMED CONSENT
Dear Participant,
Barriers in supplier development encountered by SMEs as suppliers in the South
African railway industry.
As part of the MBA programme at the University of Pretoria’s Gordon Institute of
Business Science (GIBS), I am conducting a study in order to gain insights on SMEs
in the South African rail industry. The study seeks to discover the insights on
Supplier Development, particularly on the notion of SMEs as suppliers, barriers they
encounter to be suppliers in the South African rail industry, causes of failures in
Supplier Development process and the actions they take to become Supplier
Development candidates with OEM (Original Equipment Manufacturers).
The proposed interview would last one hour. Your participation is voluntary
and you can withdraw at any time without penalty. All data will be kept
confidential. In addition, all data will be treated as confidential and the results of
this study will be presented in the aggregate and individuals will not be associated
with findings or views expressed. If you have any concerns, please contact me or
my Research Supervisor.
Thank you for considering taking part in this research.
Researcher Name: Phila Sithole Supervisor: Dr Pieter
Pretorius
Email: [email protected] Email: [email protected]
Phone: +27 082443 5422 Phone: +27 11 771 4000
ACCEPTANCE
Signature of Participant Signature of Researcher
Date:
© 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria.